QL  Resources  (QL)’s  1HFY14  results  were  within  our  and  consensus forecasts. We deem the results as in line, as 1H is normally weaker than 2H.  Revenue  and  earnings  were  stronger  largely  due  to  a  better showing  from  its  MPM  segment.  We  are  upbeat  on  QL’s  outlook  and maintain our BUY call, with a higher FV of MYR4.90 (from MYR4.20).

• In  line.  QL’s  1HFY14  revenue  grew  by  13.2%  y-o-y  as  it  booked stronger  sales  across  the  board.  Turnover  from  its  marine  product manufacturing  (MPM)  unit  improved  by  10.1%  y-o-y  due  to  higher contributions  from surimi-based products and fishmeal operations,  while integrated livestock farming (ILF) sales increased by 15.6% y-o-y, thanks to  higher  raw  material  trade  and  stronger  sales  contribution s  from  its poultry farms. Meanwhile, topline from palm oil activities  (POA)  was also higher by 8.4% y-o-y, due to higher fresh fruit bunches (FFB) processed. Earnings  expanded  by  13%  y-o-y,  mainly  driven  by  better  profitability from  MPM and ILF  -  which mitigated the slight losses from POA. MPM’s PBT grew by 26.8% y-o-y due to better margins from fishmeal operations while the higher  PBT  (+5.3%)  from its ILF  unit came from  wider margins from Peninsular  Malaysia and its regional poultry operations.  PBT from POA was  significantly  weaker  from  lower CPO prices as  well as losses from its plantations in Indonesia.
• Slight drop in PBT margin. The company’s EBITDA remained at 12.2% while  its  PBT  margin  was  lower  at  8.2%  from  8.6%,  mainly  due  to weaker PBT margins from POA (  to  -0.7% from 4% y-o-y) and ILF (to 5.9% from 6.4% y-o-y), offsetting the better PBT margin of MPM which improved  to  18.4%  from  15.9%  y-o-y.  Key  risks  include  volatile commodity  prices  and  potential  animal  diseases  disrupting  poultry operations. We are maintaining our forecasts, given the in-line results.
• Maintain BUY.  We derive our  new FV of MYR4.90 (from MYR4.20)  as we  roll  over our valuation to  CY15 (from CY14)  and peg the stock  to  a higher  P/E  of  21x  (from  19x).  We  believe  QL  deserves  a  higher  P/E compared  to  its  peers,  which  are  trading  at  ~20x,  due  to  its  higher growth prospects and promising regional expansion. Maintain BUY.

Financial Exhibits

SWOT Analysis

Company Profile
QL Resources is mainly involved in marine processing, palm oil activities and livestock farming.

Recommendation Chart

Source: RHB