BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Thursday, 19 April, 2012

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QL Resources Bhd
Promising earnings growth...
Stock Data Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant QLG MK 2,629.1 Equity 832.0 3.55 2.51 347,268 41.1% Y Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders CBG Holdings SB Farsathy Holdings SB 3.6 2.6% 4.5% 0.8 44.9% 12.9%

Neutral
Price Target Price RM3.16 RM3.43
We recently visited QLs pioneer marine plant in Hutan Melintang, Perak and were amazed with the cleanliness and the technology used in processing the surimi and the surimi based products. Certified by JAKIM, we also acknowledged the products as halalan toyyiban with great growth potential judging from the sizeable and growing Muslim population in the global halal market. As of 2010, there are 1.8bn Muslim population worldwide and is expected to reach 1.9bn by 2020. For 9MFYE03/12, the MPM division contributed 24% to the groups total revenue, second to ILF (56%) and followed by POA (19%). At this juncture we are maintaining QL Resources with a Neutral rating with an indicative fair value of RM3.43 based on 19 times CY12 earnings. Nonetheless, the group offers great upside potential over a longer term period. Expanding abroad. To recap, QL is currently the biggest producer of surimi, surimi-based products and fishmeal manufacturer in Malaysia with a 50% market share in the surimi segment, and 30% each in the surimi-based products and fishmeal. Leveraging on its success and experience in Malaysia, QL is replicating its business model in Indonesia with production capacity of 5K tonnes of surimi and fishmeal per year each. With a CAPEX of USD10m, QL is planning to boost its operations by adding its surimi and fishmeal production lines to 10k MT per year and these are expected to commence operations by Dec 2012. A unique blend of resilience. QL is one the rare few that was not affected by global vagaries. Over the years, its earnings growth went uninterrupted despite the advent of the Asian Financial crisis, SARS and sub-prime crisis. Apart from MPM, key earnings growth catalyst will come from its POA division when the 20,000 hectare Indonesian plantation reaches maturity and expected to deliver positive contribution in FY13 and beyond. Same goes to its poultry farming in Indonesia and Vietnam, where contributions are expected to come onstream by FY13. View & Valuation. Following our recent meeting with the management, we are convinced that QLs long term prospect remains intact and looking promising. For now, we ascribed target price of RM3.43 by applying a CY12 EPS over its PER multiple of 19x which is +1 std.dev of its past 3-years PE valuation justified by its solid fundamental, and the expectation that regional expansion on both of its poultry farms (Indonesia and Vietnam) and oil palm plantations (Indonesia) would provide significant contribution by FY13 onwards.

Share Performance (%) Absolute vs. KLCI Financial Highlights FYE Mar(RMm) 2009 Revenue 1,397.9 EBIT 125.5 Pre-tax profit 109.9 Net Profit 89.3 CY Net Profit 102.2 EPS (sen) 10.7 EPS growth (%) 10.6% CY EPS (sen) 12.3 PER (x) 30.3 DPS (sen) 3.3 Div. Yield (%) 1.0% NTA/share (RM) 0.50 EBIT margin Pre-tax margin Effective tax rate ROE Growth ratios Turnover EBIT Pre-tax profit Net profit Share Price Chart
3.50 3.40 3.30 3.20 3.10 3.00 2.90 2.80 2.70 2.60 2.50 Apr-11

1mth (3.4) (5.4)

3mth 3.3 (2.0)

12mth 0.8 (5.4)

2010 1,476.4 148.6 136.2 106.4 120.0 12.8 19.2% 14.4 25.4 3.6 1.1% 0.60 10.1% 9.2% 15.8% 23.1%

2011 1,776.8 174.6 160.8 124.6 135.8 15.0 17.0% 16.3 21.7 3.7 1.1% 0.87 9.8% 9.1% 16.8% 20.1%

2012E 1,893.7 186.5 178.4 139.5 150.2 16.8 12.0% 18.0 19.4 4.0 1.2% 0.96 9.8% 8.0% 16.0% 19.6%

2013E 2,146.3 203.0 194.4 153.7 165.8 18.5 10.2% 19.9 17.6 4.3 1.3% 1.05 9.5% 8.1% 16.0% 21.0%

9.0% 7.9% 12.0% 22.9%

7.4% 14.0% 14.7% 10.6%

5.6% 18.4% 23.9% 19.2%

20.3% 17.5% 18.1% 17.0%

6.6% 6.8% 10.9% 12.0%

13.3% 8.9% 9.0% 10.2%

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

The Research Team research@bimbsec.com.my 03-26918887 ext 111

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19 April 2012

Visit Note: QL Resources Following are pictorials of QLs Marine Products Manufacturing (MPM) facility in Hutan Melintang Surimi making process. Surimi process involved a series of activities. First the fish is graded according to size and species right after the fish is landed on the jetty. The fish is then de-headed, gutted, de-boned and skinned. The processed fish meat is then minced and washed in cold pure water to eliminate any odours. After a series of washing processes, the surimi is then taken to a centrifuge for pressing to extract any excess water. It is then mixed with cryoprotectants, refined and packed into plastic bags. Finally, the surimi packs are inspected by X-Ray machines to detect for any foreign particles before being frozen. QLs marine products are distributed nationwide via its distribution network both under private label and QL portfolio brands i.e Ocean Ria, Figo, Mushroom and Ika Fish Snack. Figure 1: Fish landing and fish grading

Source: Company/BIMB Securities

Figure 2: De-heading and washing

Source: Company/BIMB Securities

Figure 3: De-boning and skinning

Source: Company/BIMB Securities

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19 April 2012

Visit Note: QL Resources

Figure 4: Surimi process

Source: Company/BIMB Securities

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19 April 2012

Visit Note: QL Resources

Figure 5: Surimi-based product

Source: Company/BIMB Securities

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19 April 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Visit Note: QL Resources

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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