QL RESOURCES BERHAD (QL)

Transcription

1 QL RESOURCES BERHAD (QL) All figures in millions of Ringgit Malaysia except per share values and ratios Analysis Date: 14/06/2013 Financial Year: /03/2012 Latest Quarter: 31/03/2012 Price: 3.17 Stock Category: Large Capital Growing Overview (Reuters): QL Resources Berhad is an integrated resource-based agriculture company. The Company operates in three segments: marine-products manufacturing, palm oil activities and integrated livestock farming. Marine Products Manufacturing consists of upstream and downstream activities, including fishmeal, surimi, surimi-based products manufacturing and deep sea fishing. It also produces poultry eggs. The Company is engaged in palm oil from milling to estate ownership and management. The Company has two independent crude palm oil (CPO) mills servicing small and medium sized estates. During the fiscal year ended March 31, 2012 (fiscal 2012), the Company acquired Gelombang Elit (M) Sdn. Bhd., Icon Blitz Sdn. Bhd. and Leisure Pyramid Sdn. Bhd. Subsequent to the fiscal year end it acquired QL Aquamarine Sdn. Bhd. In October 2012, its 70.59% owned subsidiary, QL Endau Marine Products Sdn. Bhd., acquired Inspirasi Sutera Sdn. Bhd. On May 14, 2013, the Company acquired Saga Inovatif Sdn. Bhd. Overview (Bloomberg): QL Resources Berhad, an investment holding company, engages in marine products manufacturing, integrated livestock farming, and crude palm oil milling activities primarily in Malaysia, Indonesia, Singapore, and Vietnam. The company is involved in deep sea fishing; and manufacturing and selling surimi, which is fish paste, as well as surimi based products and fishmeal. It also engages in the crude palm oil milling and oil palm cultivation activities; owns and manages 3,000 acres of oil palm estate; and operates 40,000 acre under development plantation. In addition, the company distributes animal feed raw materials; and food related products, as well as provides livestock and poultry farming services. Further, it distributes lubricants and food grains, supplements, animal health products, and agricultural products; manufactures and sells meehoon and noodles, frozen halal foodstuff, frozen fish products, and frozen sea food; and sells fresh fruit bunches and markets palm oil products. Additionally, the company is involved in the property holding; layer and broiler farming; and frozen chicken parts wholesale activities. QL Resources Berhad is based in Shah Alam, Malaysia. Board: FBMKLCI: Industry: Sub-Sector: Ownership: Main Board NO CONSUMER PRODUCTS POULTRY FARMING/HATCHERY/BROILER/AQUACUL Corporate Owned (Local) Investment Strategy Portfolio Strategy: Lump Sum + Top Up Averaging Down Method: Dollar Cost/Value Averaging Portfolio Execution: Buy and Monitor Basis for Buying & Selling: Institutional Sponsorship Market Direction

2 Due-Diligence Measures 2003/3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/31 5-Y Avg. 10-Y Growth 5-Y Growth Sparkline Grade Profitability Consistently increasing Sales 705, , ,585 1,010,549 1,118,519 1,306,825 1,397,905 1,476,396 1,777,081 1,946,672 1, % 10.37% Revenue (Pref. 8%) Consistent and increasing ROIC 15.20% 18.27% 16.46% 15.11% 17.65% 17.76% 16.11% 15.88% 13.90% 12.27% 13.99% -2.31% -8.86% (Pref. 15%) Increasing Net Profit Margin (Pref. 4.46% 4.46% 4.89% 5.84% 6.90% 7.33% 7.86% 9.21% 9.05% 8.85% 8.77% 9.23% 5.17% 10%) Cash Flow Consistently increasing Net Cash 47,697 54,736 36,663 50,898 95, ,549 77, , , , % 12.60% from Ops. (Pref. 8%) Consistent and increasing CROIC N/A 37.50% 10.55% 11.61% 25.19% 23.19% 10.24% 21.43% 4.45% 9.71% 11.08% % % (Pref. 15%) Increasing Free Cash Flow / Sales N/A 7.83% 2.68% 3.80% 8.22% 8.12% 4.28% 10.17% 2.36% 5.63% 5.52% -0.65% % (Pref. 5%) Consistently decreasing (or % -0.70% negative) Cash Conversion Cycle Financial Risks Increasing Debt Coverage Ratio N/A 30.93% 10.73% 16.88% 34.71% 33.45% 15.80% 36.43% 8.41% 18.38% 19.32% N/A % (Pref. 150%) Increasing Quick Ratio (Pref. 100%) 66.53% 66.50% 73.05% 63.19% 65.02% 65.75% 77.07% 97.90% 93.91% 79.58% 85.16% 3.70% 5.79%

3 Growth Quality Column1 2003/3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/31 Revenue % Year over Year 27.44% 4.69% 7.32% 10.68% 16.84% 6.97% 5.61% 20.37% 9.54% 3-Year Average 14.42% 5.83% 8.61% 12.86% 11.15% 6.10% 12.00% 13.83% 5-Year Average 10.38% 9.19% 10.47% 9.81% 10.48% 10.37% 10-Year Average 10.47% EBIT % Year over Year 25.94% 14.78% 26.88% 27.07% 24.43% 14.33% 18.32% 17.62% 5.85% 3-Year Average 18.42% 18.79% 23.88% 22.91% 17.63% 15.11% 16.53% 10.95% 5-Year Average 20.68% 21.46% 21.19% 18.73% 16.68% 13.73% 10-Year Average 18.39% Net Income % Year over Year 24.95% 34.34% 33.85% 41.87% 17.81% 10.55% 19.68% 16.50% 5.50% 3-Year Average 25.90% 29.34% 32.06% 25.68% 13.21% 14.00% 16.62% 10.31% 5-Year Average 29.05% 28.42% 23.25% 18.52% 14.73% 13.05% 10-Year Average 20.88% EPS % Year over Year % % 0.00% 20.83% % 12.50% 0.00% 18.52% 0.00% 3-Year Average 14.38% % 9.46% 0.00% -3.57% 5.89% 8.49% 8.49% 5-Year Average 3.25% % 2.36% 1.64% 3.15% 7.45% 10-Year Average 2.15% Cash From Ops. % Year over Year 14.76% % 38.83% 88.04% 21.77% % % % 28.41% 3-Year Average % -3.63% 47.98% 41.42% % 19.35% 26.41% -1.06% 5-Year Average 13.20% 24.71% 23.16% 22.15% 10.12% 12.60% 10-Year Average 16.12% Free Cash Flow % N/A Year over Year % 52.15% % 15.38% % % % % 3-Year Average % 64.61% 50.78% % 17.41% % % 5-Year Average 21.11% 27.41% 22.98% % -2.90% 10-Year Average 9.31% 2,500,000 Growth Quality 200, ,000 2,000, , ,000 1,500, , ,000 1,000,000 80,000 60, ,000 40,000 20, Revenue EBIT Net Income Cash From Ops. FCF 0

4 Stock vs Sector POULTRY FARMING/HATCHERY/BROILER/AQUACUL Stock Board Market Cap PE Dividend Yield EPS ROE ROR ROTA BAHVEST A CAB M CCK M DBE M FARMBES M HUATLAI M LAYHONG M LTKM M QL M SHCHAN M TEOSENG M TPC M XIANLNG M Stock vs Sector % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 11.72% 14.48% 14.61% 16.54% 86.43% 27.82% 7.23% 14.31% Sales - 5Y Growth EPS - 5Y Growth Debt to Equity - 5Y Avg Net Profit Margin - 5Y Avg 20.72% 69.96% ROE - 5Y Avg Company Sector

5 Economic Moat Area Comments Key Ratios - Monopoly situation QL is the main agriculture company in Malaysia. Brand leadership / For sure Operating strategy Barriers to Entry High start-up costs and hard to build product differentiation Marketship - leadership Economic Moat - Future Growth Strategy/Drivers Source Annual Report Analyst Reports Future Growth Strategy/Drivers In the annual report of FY2011, we forecasted FY2012 to be an inflection point year, with slower growth rate. We also foresaw FY2013 to be a better year due to the expected significant contribution from regional investments. This latter objective still stands. Although turbulent macroeconomic conditions in FY2013 will make the external environment challenging, we will, barring unforeseen circumstances, still see better contributions from these investments. Doubling production in surimi and fishmeal production by May this year, we expect this segment to support QL?s growth prospects going forward. Contributing c.45% of group?s earnings going forward, with any unforeseen downfalls that could affect the integrated livestock farming (ILF) and palm oil activities (POA) segments would be sustained by MPM. More to come from marine division. Sales from the marine division grew 15% YoY in FY3/13 but pretax profit escalated 41% YoY on the back of increasing pretax margin (+3-ppt YoY to 15.9%). Doubling of surimi and fishmeal capacity in the Surabaya plant should drive growth in FY3/14 and FY3/15. Margins could be further enhanced by producing surimi-based products in Surabaya eventually. Recovery of egg prices. Although livestock revenue increased 16% YoY in FY3/13, pretax profit dropped by 27% YoY, dragged by the weak livestock margins in 2Q- 3Q. Our channel checks in early May 2013 showed that egg prices have recovered across all grades, selling at close to ceiling price during festivals. Also, feedmeal prices are lower today. Hence, we are confident that QL s livestock pretax margin could improve further to the normal range of 7-8% from 5.9% in 4QFY3/13. Lower FFB processed. Palm oil revenue declined 5% YoY and 15% QoQ due to lower FFB processed in 4QFY3/13. Overall, pretax profit dropped 27% YoY in FY3/13 mainly due to lower CPO prices which averaged MYR2,600/mt (FY3/12: MYR3,150/mt). Growth in FY3/14 will not be significant yet as QL s 15,000ha land will only be fully planted by FY3/15 (10,000ha planted todate). Reiterate Buy. With the easing of soybean and corn prices, and improvement in livestock margins, QL should see both of this key divisions (including marine)

6 Risk Management Source Risks Annual Report - Analyst Reports The global economic and weather uncertainties.

7 Shareholder Wealth Creation Buy and Hold Return (Pref. 8%) 8% 3-Y Price CAGR % 19.99% 5-Y Price CAGR % 22.04% 10-Y Price CAGR % 30.04% Full History Price CAGR % 20.71% Consistent and increasing Dividend Payout % (Pref. 60%) 60% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% Dividend Payout % 0.00% Increasing EPS PAR-Adjusted EPS

8 Increasing DPS PAR-Adjusted DPS Historical Weekly Price Chart

9 Market Timing Absolute P/E EY % Oscillator Good PE Base PE2 Bad PE3 Expected Earnings Growth 10.00% % % 11 Dividend Yield 1.42% % % 1 Business Risk Factor Financial Risk Factor Earnings Visibility Factor Fair P/E Current EPS Fair Price Margin of Safety Buy P/E Buy Price Expected DPS Expected Dividend Yield Sell P/E Sell Price % % % % 1.63 EY% Price ($) High Green Zone EY% 10.99% Green Zone Price($) RM1.44 Low Trading Range 4.39% 10.55% Price ($) RM % 7.04% Price ($) RM % Low Red Zone EY% 6.60% Red Zone Price($) RM2.40 High Buy Under 1.50 Sell Above 2.25

10 The current quarter's EPS is up more than 15% from the same quarter the year before Quarterly EPS Mar-12 Mar-13 Mar-12 Sep Mar Growth %

11 Notes Created Date Note 14/06/2013 Based on Absolute P/E and EY% valuation, it is overvalued now. 14/06/2013 Rich cash flow, but the growth is not consistent. So, DCF valuation is not suitable.