QL Resources - BUY - 16 Apr 2008

QL Resources – Bonus issue & share buyback (Company Update)



Price: RM4.28 (RM2.85)*

Target Price: RM4.80 (RM3.30)*

Recommendation: BUY

* Ex-Bonus



· QL Resources announced a bonus issue of 110m new shares of RM0.50 each on the basis of 1 new share for every 2 existing shares held, to be completed by 2QCY08. The firm will be capitalising up to RM40m from its share premium account (RM147.5m as at 31 March 2007) and RM15m from retained earnings (RM40.4m) for the bonus issue.

· The bonus issue would eventually raise its market capitalisation and would improve liquidity by raising share capital to 330m from 220m. QL aims to raise the average traded volume of its stock for the past 3 months from 145,430 shares.

· Share buyback for up to 33m shares, pursuant to the bonus issue. The purchase price of up to 10% of the enlarged share capital will not exceed 15% of the 5-day weighted average market price prior to the date of purchase. The firm has not confirmed whether it intends to cancel the shares or hold them as treasury shares. The exercise will be financed by bank borrowings (not exceeding the sum of retained profits and share premium) and internal funds.

· FY08 and FY09 net profit estimates unchanged. The corporate exercises will not have any material effect on earnings. We believe that the firm is on track to achieving our forecast FY08 net profit growth of 20%. FY08 and FY09 EPS adjusted for the bonus issue would be lower at 23.0 sen and 27.2 sen, from 34.5 sen and 40.8 sen respectively.

· Re-iterate BUY recommendation with adjusted target price of RM3.30. Our target price is derived from previous 12x PER applied to FY09 EPS of 27.2 sen adjusted for the bonus issue. QL’s consistent resource-based earnings with double-digit net profit growth for the past 5 years offers some surety given current market conditions. Potential FY08 dividend yield of 2.6% also adds some attraction to the stock.





KENANGA INVESTMENT BANK BERHAD (15678-H)