INVESTMENT HIGHLIGHTS

• We initiate coverage on QL Resources Berhad (QL) with a NEUTRAL recommendation and TP of RM4.62 per share

• Our valuation is based on PER18 of 26x pegged to EPS18 of 17.76sen

• QL’s MPM segment upside potential could be limited in the near term

• Its well-integrated and diversified agro-food business to sustain earnings

Company businesses. QL is a multinational agro-food company that farms and produces protein and food energy sources. The company has three main business segments;

i) Integrated Livestock Farming (ILF) – Distribution of animal feed raw materials, food related products and livestock farming;

ii) Marine Products Manufacturing (MPM) - Deep-sea fishing, manufacture and sale of fishmeal, surimi and surimi-based products and;

iii) Palm oil and biomass energy activities (POA) - Plantation, crude palm oil milling and downstream palm biomass technology

For the previous financial year i.e. FY16, the revenue contribution from the ILF, MPM and POA segments are 60%, 29% and 11% respectively. In terms of operating income, the contributions are 28%, 67% and 5% for the three segments respectively.

Key investment thesis:

i) Strong competitive advantage via vertical integration;

ii) Horizontal diversification provides protection from investment risk;

iii) ILF segment is expected to normalise due to better product pricing and;

iv) POL segment to recover from a weak FY16

Source: MIDF Research - 11 Apr 2017