QL Resources Bhd BUY

Price target RM3.00

Share price at 16 Feb RM2.45

Investment summary
We initiate coverage on QL Resources (QL) with a BUY rating and PT of RM3.00/share based on 9x FY10E PE: (1) We like QL for its proven management, strong profit track record (32% CAGR in FY04-08) and consistently high ROE (20-22% FY04-08). Successful implementation of its expansion plans in Indonesia and Vietnam provides impetus for next growth phase in FY11E. (2) In a recessionary economy, QL stands out for its defensive earnings qualities due to the inelasticity of consumer demand for staple food items. (3) The economic slowdown provides an opportunity for QL to gain market share by acquiring competitors at discounted valuations.

ST defensive; LT growth
Share price is trading at 8x FY10E PE, re-testing its 5-year historical trough PE band. QL is a LT growth play with defensive earnings. Share price could re-rate on successful expansion to regional markets.