Tuesday, September 6, 2011

QL ... Sep11

ZJ Research

1QFY12 Results Review
• QL’s 1QFY12 net profit of RM27.8 mln constitutes 19% of our full year forecast of RM145.8 mln,
which we deem to be in line broadly with our expectations as 1Q is seasonally weak with
performance generally improve in the remaining quarters. Incidentally, management also noted
in the results that 1Q is historically the weakest quarter, contributing an average of 21% to full
year earnings.

• 1QFY12 revenue rose 18.2% y-o-y to RM384.5 mln on higher contributions from all 3 business
divisions -- Marine Products Manufacturing (MPM), Palm Oil Activities (POA) and Integrated
Livestock Farming (ILF). The MPM (+65.6% y-o-y) and ILF (+10.8% y-o-y) segments, in
particular, generated the bulk of the revenue growth, as illustrated in the table below:-

• The MPM division reported a 25.7% y-o-y decline in PBT on a marginal 1.6% y-o-y increase in
turnover, principally due to lower fishmeal prices and poor fish landing in Sabah during the
quarter under review. To recap, fishmeal prices shot up in 2010 due to decline in supply arising
from reduced fish catch in Peru and Chile. The supply has since normalized and fishmeal prices
have corrected accordingly. Meanwhile, bad weather in 1QFY12 was the culprit for the poor fish
landing in Sabah. We understand from management that the situation has since improved in

2QFY12 with fish landing resumed to the previous level.
• The POA business experienced great improvement in 1QFY12 with revenue and PBT rising
65.6% and 623.5% y-o-y respectively, attributed to i) increase in the average CPO price to
RM3,332/mt from RM2,511/mt); ii) 28% increase in FFB processed; and iii) new contribution
from its listed-associate, Boilermech Holdings Bhd. Correspondingly, PBT margin for POA
expanded to 6.9% from 1.6% in 1QFY11.

• As for the ILF segment, the increase in selling prices of feed raw materials pushed sales higher
by 10.8% y-o-y to RM235.1 mln. Nevertheless, PBT only rose by a marginal 0.6% y-o-y due to
lower profit margin from the trading activities of feed raw materials.

• Overall, 1QFY12 EBITDA margin weakened to 11.6% from 12.3% a year ago, largely due to the
poorer performance of the MPM business, which carries the highest PBT margin. Meanwhile,
on balance sheet strength, net gearing rose slightly to 0.6x as at end-June 2011 from 0.5x in
March 2011, backed by a NTA per share of 92 sen.

• In the longer term, QL’s prospects remain bright, underpinned by the growth in the domestic
market as well as its expansion efforts in overseas. Management indicated that its overseas
ventures are all on track, with the status as follows:-

• In addition, QL’s oil palm plantation venture in Kalimantan, Indonesia, which comprises 20,000
hectares in plantation land, is also ongoing with maiden contribution expected to commence in
FY13.

• At this juncture, we maintain our FY12 net profit estimate of RM145.8 mln (+17.1% y-o-y) on the
expectation of better performance in the remaining quarters to make up for the slack in 1QFY11.
We also expect improvement in EBITDA margin in 2QFY12, driven by better performance from
its MPM division. Overall growth drivers in FY12, meanwhile, include continued increase in demand from the local market, contribution from its recently listed-associate, Boilermech, as
well as from its new breeder farm in Indonesia.

Recommendation
We maintain our Buy recommendation on QL with an unchanged fair value of RM3.60, derived from
ascribing a peer-benchmarked EV/EBITDA multiple of 14x. We continue to like QL for its i) highly
capable management who has led the Group’s outstanding double-digit revenue and net profit growth
over the last decade; ii) continuation of double-digit earnings growth in FY12 and FY13; iii) healthy
fundamentals; iv) new income streams from its overseas ventures; and v) potential upside from its
biogas and palm pellet projects.

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