QL participated in our first ASEAN-HK Consumer Day in Singapore last week.  The  company’s  outlook  remains  favourable,  fuelled  by  high growth stemming from its regional expansion. The earnings drivers are: i)  the  recovery  of  poultry  margins,  and  ii)  the  expansion  of  its  marine unit is on track. Maintain BUY, with our FV at MYR4.20. 
 
- A  better  year  ahead.  QL  Resources’  FY13  results  were  flat  as  its integrated  livestock farming  (ILF)  segment  faced  tough  operating environment, hit by higher raw material prices and poor egg prices, which crimped  margins. We  believe  the  worst  is  over  for  the  group  given  that raw material costs are easing and egg prices are improving. We believe the  better  ILF  margins  and  the  fact  that  the group’s regional  expansion bearing fruit are strong price catalysts in the medium term.

- Venturing  into  prawn  aquaculture.  The  group  is  investing  in  marine white  prawn  aquaculture in  Kudat, on  which  it  will  spend  MYR24m  over two  years  to  develop  a  facility  scheduled  to  be  completed  by  4QFY15. The  first  20  ponds  are  set  to  be  constructed  -  and  should  be  able  to commence  operations  -  by  end-CY13.  This  project  includes  a  nursery, hatchery, feedmill, grow-out farm and processing centre. We have yet to impute  the  additional  contribution  coming  from  the  aquaculture  project, as  it is  still  in  its  infancy.  QL  is  also  hunting  for  opportunities  to  venture into surimi-based product manufacturing in Surabaya, Indonesia, as it is currently involved in only surimi production there.  

- Building  feedmill  in  Indonesia.  In  order  to  lower  its  feed  cost  and lengthen  the  value  chain,  the  group  is  building  its  own  feedmill  in Indonesia. The feedmill, with a 20k tonnes per month capacity, is slated to  be  ready  by  4QFY15.  QL  has  also  started  to  supply  quality  graded eggs  to  McDonald’s  Jakarta-Bandung,  Indonesia  (~60k  eggs  per  day). Going  forward,  it  will  supply  eggs  to  more  modern  chain  stores  in Indonesia such as IndoMart, Solaria, Matahari Group and Lotte.

- Maintain  BUY.  Our  FV  of  MYR4.20  is  based  on  19x  CY14  EPS.  We maintain our BUY call on the stock, as we continue to like QL’s regional expansion strategy and margin recovery.

Source: RHB