QL Resources (QL)’s FY14 results were within consensus and our estimates. Revenue and net profit recorded sterling growth y-o-y, supported by the better performance from its MPM and ILF segments.Maintain BUY with FV unchanged at MYR3.60. We continue to like the stock due to the promising growth prospects from its regional expansion.

• A good ending for FY14.QL’s FY14 sales increased by 14.5% y-o-y, supported by higher turnover from its divisions such as marine product manufacturing (MPM), which grew 13.2% y-o-y, integrated livestock farming (ILF), which rose 15.7% y-o-y and palm oil activities (POA), which rose 11.6%. Earnings expanded by 21.4% y-o-y, mainly driven by stronger profit before tax (PBT) from MPM and ILF businesses, which offset the weaker numbers from POA. PBT from MPM improved by 26.8% y-o-y due to higher contribution from Indonesia’s fishery and surimi-based products’ operations while PBT from ILF rose by 19.6% yo-y, largely attributed by higher volume of feed raw materials traded and better farm-produced prices (average egg price: 28-29 sen vs 25 sen yo-y). Nonetheless, POA’s PBT weakened by 39.7% y-o-y, no thanks to lower crude palm oil (CPO) prices as well as losses from its plantationsin Indonesia in 1HFY14. Compared with 3Q14, revenue and net profit dropped by 8.8% and 13.5% respectively in 4Q14.
• Wider margins. The group’s PBT margin improved slightly by 30 bps yo-y to 8.3% from 8% y-o-y, lifted by: i) fatter PBT margin from MPM, which expanded to 17.6% from 15.7% in FY13 due to stronger sales, and ii) a 20bps y-o-y improvement in ILF’s PBT margin, which ticked up to 5.7% from 5.5% in FY13 due to better farm-produced prices. The better margins from the other two divisions offset the lower PBT margin from POA segment, which slipped to 2.7% from 5.1% y-o-y.
• Maintain BUY.We are leaving our numbers unchanged due to the inline results. Maintain BUY with a FV of MYR3.60, based on 21x CY15 EPS (the industry’s average P/E). QL is our Top Pick given its solid fundamentals and strong growth prospects from its regional expansion. The key risks include higher commodity prices and a poultry disease outbreak.

Source: RHB