QL Resources - BUY - 27 Aug 2008

QL Resources - 1QFY09 results in-line with expectations (Results Note)



Price: RM2.74

Target Price: RM3.60

Recommendation: BUY



· QL Resources' (QL) 1QFY09 net profit of RM21.5m is within our expectations, comprising 22% and 23% of our forecast and street estimates respectively. 1QFY09 earnings were buoyed by robust commodities prices and greater contribution from its 3,000 acre maturing oil palm plantation in Tawau, Sabah.

· YoY, all 3 divisions registered improved profitability in 1QFY09 mainly due to elevated commodities prices. The ILF division is still the largest contributor to revenue accounting for just over half 1QFY09 revenue. The lofty price of feed commodities (soybean meal and maize prices were 45% and 70% higher YoY in 1QFY09), higher surimi prices (the average price of surimi in 2008 was 38% higher YoY at RM11,000/mt) and larger contribution from deep-sea fishing; as well as the lofty price of CPO (up by 50% YoY in 1QFY09) and higher contribution of the maturing plantation resulted in a 16% increase in 1QFY09 revenue. The MPM and ILF divisions were the largest pretax profit contributors with improved margins although all divisions registered significant growth YoY.

· QoQ, 1QFY09 revenue increased by 11% propelled by high surimi prices and improved fish landing (4QFY08 was negatively impacted by the monsoon season) in the MPM segment; high CPO price (up by 26% QoQ) in the POA division and high raw material prices (soybean meal and maize were up by 3% and 22% respectively). 1QFY09 pretax profit improved by 10% in-line with higher revenue but net profit rose by only 2% due to higher taxation (from timing differences) and minority interest (improved profitability of subsidiaries).

· Maintain FY09 and FY10 net profit forecast. 1Q is seasonally the weakest quarter for QL.

· Re-iterate BUY with target price of RM3.60 derived from 12x PER applied to FY09 FD EPS of 29.8 sen (adjusted for bonus issue in June 2008). QL is currently trading at 9.2x and 7.6x FY09 and FY10 PERs respectively. We favour QL for its solid track record of earnings growth and planned expansion domestically and regionally. Prospective FY09 and FY10 dividend yields of 4.0% and 4.4% further recommend the stock.