QL Resources Bhd

• Riding uptrend in demand for food commodities
Initiate coverage on QL Resources (QL with a Buy recommendation and
target price of RM7.30) based on 20x CY11 P/E. QL’s products will benefit
directly from the rising global demand and price trend for food
commodities. The group is one of Asia’s largest surimi manufacturers and
a Malaysian market leader in livestock feed trading, fishmeal and egg
production.

• Sustainable earnings growth
We have forecast a 3-year forward forecast EPS CAGR of 17.3% (FY11-
13), that will be driven by strong demand for QL’s marine, livestock feed,
poultry products and palm oil, with rising population and disposable
income, as well as the group’s steady capacity expansion. Diversification
reduces earnings volatility by smoothening out cyclicality of its resourcebased activities.

• Assertive regionalisation drive 
QL’s expansion plan is both local and regional, with total group capex set
to increase by 60% in the next 2 years to RM200m annually. The group is
replicating its business model in the ASEAN region with new poultry farms
in Tay Ninh, Vietnam and Cianjur, Indonesia; a new marine plant being
constructed in Surabaya, Indonesia and further planting and palm oil mill
slated for its plantation in Tarakan, Kalimantan, Indonesia.

• Benefits from government incentives for agriculture
QL benefits from the government’s pro-agriculture stance via tax
incentives that translate to a lower tax rate (15% in FY10) and subsidised
diesel for its deep sea fishing operations. The group’s latest venture into
renewable energy is directly in accordance with the government’s
promotion of green technology as contained in the Budget 2011
announcement.

• Further upside to share price 
Despite what seems like expensive valuations, we are bullish on QL as we
firmly believe it deserves premium valuation to peers as well as market.
QL’s next 2 years earnings CAGR of 16.1% is impressive as compared to
Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL’s
average 12-month forward earnings growth is impressive at 23%. At our
target price, PEG ratio is undemanding at only 0.9x based on 10-year
average growth rate.

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