Can QL Resources Continues its Up Trend After a Long Side Way Movement?

Background and Core Business

QL Resources is a sustainable and scalable multinational agro-food corporation that farms and produces some of the most resource-efficient protein and food energy sources. The Group has three principal activities; (1) Integrated Livestock Farming, (2) Marine Products Manufacturing and (3) Palm Oil Activities, and operates in Malaysia, Indonesia, Vietnam and China.

Marine Products Manufacturing consists of upstream and downstream activities including deep-sea fishing, aquaculture farming, surimi and fishmeal production and consumer foods. Through the use of innovative technology and quality practices, QL has achieved industry leadership positions including being Malaysia’s largest fishmeal manufacturer and producer of surimi-products, and Asia’s largest surimi producer. Mushroom and Figo, QL’s marine-product consumer foods brands, are distributed across Asia, Europe and North America.

Organic growth and a series of strategic acquisitions has driven QL’s rise to become one of Malaysia’s leading operators in animal feed raw materials and poultry farming. QL is among ASEAN’s leading poultry egg producers with a group production rate of 4.6 million eggs per day. Approximately 40 million Day Old Chicks (DOC) and 20 million broilers are produced annually across poultry farms in Malaysia and Indonesia. In Malaysia, QL trades over 900,000 metric tons of animal feed raw materials annually.

QL has built-up its capabilities in palm oil from milling and estate ownership to biomass clean energy in a move that expands the value chain of traditional agriculture. QL has developed proprietary technology that converts palm waste biomass into a high-quality burning fuel, and manufactures industrial boiler systems which convert that biomass fuel into energy, minimizing carbon emissions and improving energy cost efficiencies.

QL has two independent Crude Palm Oil (CPO) mills servicing small and medium sized estates in the Tawau and Kunak regions of Sabah, East Malaysia and one CPO mill in Eastern Kalimantan, Indonesia. QL owns a 1,200-hectare mature palm oil estate in Sabah, as well as 15,000-hectare plantation (9,000 hectare mature) in Eastern Kalimantan, Indonesia.

Based on Financial Year (FY) 2016 full year results, QL Resources achieved RM 2.85 billion turnovers, which is considered to be a large enterprise based on turnover value. Other aspects of the company’s financial results are illustrated in the table below.

Over the past 5 Financial Year (FY), QL Resources’ revenue has a smooth increasing trend from RM 1.95 billion in FY2012 to RM 2.85 billion in FY2016. This translates to a growth rate of close to 50% in 5 years or an average year to year growth of 10%.

Net profit wise, QL Resources has a similar gradient of increase from RM 132 million in FY2012 to RM 192 million in FY2016. This also represents a 50% increase or an average year to year increase of 9.8% within the 5-financial year window.

In terms of net profit margin, QL Resources scores a slightly below average 6.73% whereas return of equity (ROE) wise at 11.73%, which is also average.

On company’s debt, QL Resources has a total debt to equity ratio at 0.51, meaning more than half of its company’s value are from long and short term borrowings. The company’s current ratio is at a good level of 1.51 while cash ratio is at a low 0.30. However, as QL Resources’ products are of agriculture which are very liquid and fast moving, having a low cash ratio is acceptable in this case.

In terms of dividend, QL Resources pays a low 0.94% dividend yield at a low dividend pay-out ratio of 0.264.

In conclusion, QL Resources is a large size enterprise with good financial fundamentals in its income statement for having steady growth rates for both revenue and net profit over the past 5 years, but however is having high gearing in its balance sheet as half of the company value is formed by borrowings.

The smooth uptrend of its share price over the past 5 years is believe to be due to the stable growth of revenue and net profit. However, the recent side way movement of its share price might be due to the decreasing year to year growth rates in both its revenue and net profit.

For QL Resources’ share price to continue its uptrend, it has to maintain its smooth revenue and net profit growth, which the company is in a great position of achieving it by having 3 pillars of business (Marine, Live Stock, Palm Oil) which can compensate each other when any of them is in the downturn. FY2016 is a good example whereby the Marine Products Manufacturing and Integrated Livestock Farming achieved positive growth which compensates the decrease in revenue in the Palm Oil division due to low Crude Palm Oil prices.  Therefore, it is optimistic that QL Resources share price can continue to increase, however it will need more time than before due to its year to year decreasing growth rates.

Next quarterly results announcement should be on the month of Nov 2016 for Q2 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – QL Resources

Based on QL Resources 6-month weekly iVSAChart, this stock has been moving sideways for the past 6 months and is unable to muster enough momentum to continue its recent uptrend around mid-Sep 2016 to break beyond the RM4.50 to RM4.52 levels.

Meanwhile, the market continues to test the support around RM4.40 level for the past 1 to 2 months. This indicates that there is strong support for QL Resources around this price. For investor with longer term view and patience, do consider to accumulate around this level for a company with good fundamental and growth trends.

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