News  The group is disposing off a vacant freehold industrial land (141,567 sq ft) in Mukim Kajang, Tempat Sungai Keladi in the District of Hulu Langat, Negeri Selangor via its wholly owned subsidiary, QL Figo Foods Sdn Bhd (“Figo”) to a related party namely RubyTech Resources Sdn Bhd (owned by CBG Holdings Sdn Bhd, which is a major shareholder of QL Resources) for a total consideration of RM10m.

Comments  The land was initially planned for the expansion of Figo’s manufacturing operation. However, it was subsequently decided that the expansion project would not be located on the land. As a result, the sale came after a strategic review by the group and is in line with the group’s intention to divest off its non-core and non-income generating assets.

 The land was sold at RM70.60 psf. In Oct 2012, an agricultural land was transacted in the area at RM37 psf, which was 47.6% lower than the sale price of the land above. Thus, the disposal price is considered fair.

 We have factored in a one-off gain of RM3.2m from the land disposal above, pushing our FY13E net profit up marginally by 2.2% from RM138.7m to RM141.8m. As the amount of the gain is minimal, we do not expect any material impact to the balance sheet of QL with its net gearing to still remain at 0.6x.

Outlook  We are cautiously optimistic on QL as it has always delivered earnings growth and expansion plans, which will help its businesses to achieve better economies of scale.

Forecast  After factoring in the one-off gain into our FY13E earnings, our FY13E NP has been raised from RM138.7m to RM141.8m while our FY14E NP is still maintained at RM157.1m.

Rating   MAINTAIN OUTPERFORM

Valuation  Our TP remains unchanged at RM3.40 based on a PER of 18.5x on its FD FY14E EPS.

Risks  The global economic and weather uncertainties.

Source: Kenanga