QL (FV RM4.05 – BUY) Stock Pick: A Good Catch

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Fair Value: MYR4.05

QL, alrea dy a leading marine products and poultry
player, is forging ahead with its expansion into highly populated ASEAN
countries like Vietnam and Indonesia. We expect earnings from the
group’s marine, integrated poultry and palm oil operations in Indonesia
to kick in strongly by FY14, taking QL’s numbers to new heights. We like
its resilient business and solid management. Maintain BUY, with FV
unchanged at RM4.05.

25 years of uninterrupted growth. QL Resources has evolved from a
livestock feed trading company with a small fishery into a successful
marine and poultry egg producer with a fast-growing palm oil business.
Backed by a solid business model, QL’s exposure to three sustainable
basic food industries has enabled it to deliver remarkable results in
the last 25 years.

Marine business leads the way. As the leading surimi producer in
Malaysia with 25k tonnes of capacity, QL has four marine manufacturing
plants in Malaysia and one in Brondong, Surabaya. It is No.1 in chilled
fabricated fish-based products in Malaysia, manufacturing 30k tonnes of
surimi-based products a year, as well as the country’s largest fishmeal
producer, making 25k tonnes of fishmeal annually. In view of the
bountiful supply of fish in Indonesia and the promising outlook for the
global surimi industry, the group ventured into Surabaya, Indonesia with
a 10k-tonne capacity surimi plant, up from 5k tonnes previously, after
it beefed up capacity in August 2012. The group is also building a new
frozen surimi factory with annual capacity of 15k tonnes in Hutan
Melintang, as well as a new cold room for surimi-based products in Johor
Bahru (5k tonnes.), and a frozen fish cold room in Endau (2k tonnes).

The next catalyst – Indonesia. QL is targeting to ramp up egg
production at its integrated livestock farm in Indonesia to 900k eggs
per day (epd) by March 2013 from 450k epd currently. It also plans to
increase the number of day old chicks (doc) from 1.3m to 2.5m docs per
month by March 2013. We believe that the group’s Indonesian operation
will fuel its future earnings given the aggressive expansion in marine
production, integrated poultry and palm oil divisions.

Top consumer sector pick. Our Top Buy in the consumer sector, QL is a
relatively safe bet amid economic uncertainties due to its earnings
track record and defensiveness. Maintain BUY, with RM4.05 FV, based on
19x CY13 EPS.


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