Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: MAYBANK
QL Resources Bhd
(May 4, RM3.76)
Maintain buy at RM3.77 with higher target price of RM4.56: We think that QL's share price has recently been playing catch-up to its stellar earnings growth profile. We expect QL's upcoming FY10 results to exceed market expectations, but we have still not factored in potential big wins from its palm division pending clarity on FY13 earnings forecasts. Maintain buy with a raised discounted cash flow-based (DCF) target price of RM4.56 (from RM3.68) in line with raised FY10-FY12 forecasts.
We are raising FY10-FY12 net profit forecasts by 7%-15% on the back of better selling prices and better-than-expected sales volumes. Fishmeal prices, for instance, were at a record-high US$1,794/tonne (RM5,759) in March 2010, or a whopping 70.2% higher year-on-year due to both lower global supplies and higher global demand. We also expect better margins as QL's divisions gain scale economies.
Whilst scale economies contribute to better margins, we also note QL's continuous efficiency drives in FY10 that have resulted in the continual installation of biomass boilers to replace diesel boilers at its marine plants. We expect a continuous improvement in marine's pre-tax profit margin by at least 50-100 basis points annually to 16% in FY12 from 14% in FY09 as a result.
Earnings visibility from its marine and farming divisions remain solid in FY10-FY12, as carefully planned capacity growth is expected to tie in with raised demand. If overseas expansion into Indonesia and Vietnam remains on track, there are upside risks to our FY11-FY12 forecasts.
QL's share price has risen 16.9% year-to-date, and 78.8% over the last year. Nevertheless, we remain steadfast buyers of QL given its sterling track record and strong earnings visibility. Earnings per share (EPS) growth in FY11 appears negative only to the extent that QL completed a 1-for-5 bonus issue in January 2010 that enlarged its share base. Investors will still share in its 20.5% and 13.3% net profit growth in FY10 and FY11 without dilution. Our RM4.56 DCF-based target price assumes a conservative 2% terminal growth rate and 6.6% weighted average cost of capital. - Maybank IB, May 4
This article appeared in The Edge Financial Daily, May 5, 2010.
Company Name: QL RESOURCES BHD
Research House: MAYBANK
QL Resources Bhd
(May 4, RM3.76)
Maintain buy at RM3.77 with higher target price of RM4.56: We think that QL's share price has recently been playing catch-up to its stellar earnings growth profile. We expect QL's upcoming FY10 results to exceed market expectations, but we have still not factored in potential big wins from its palm division pending clarity on FY13 earnings forecasts. Maintain buy with a raised discounted cash flow-based (DCF) target price of RM4.56 (from RM3.68) in line with raised FY10-FY12 forecasts.
We are raising FY10-FY12 net profit forecasts by 7%-15% on the back of better selling prices and better-than-expected sales volumes. Fishmeal prices, for instance, were at a record-high US$1,794/tonne (RM5,759) in March 2010, or a whopping 70.2% higher year-on-year due to both lower global supplies and higher global demand. We also expect better margins as QL's divisions gain scale economies.
Whilst scale economies contribute to better margins, we also note QL's continuous efficiency drives in FY10 that have resulted in the continual installation of biomass boilers to replace diesel boilers at its marine plants. We expect a continuous improvement in marine's pre-tax profit margin by at least 50-100 basis points annually to 16% in FY12 from 14% in FY09 as a result.
Earnings visibility from its marine and farming divisions remain solid in FY10-FY12, as carefully planned capacity growth is expected to tie in with raised demand. If overseas expansion into Indonesia and Vietnam remains on track, there are upside risks to our FY11-FY12 forecasts.
QL's share price has risen 16.9% year-to-date, and 78.8% over the last year. Nevertheless, we remain steadfast buyers of QL given its sterling track record and strong earnings visibility. Earnings per share (EPS) growth in FY11 appears negative only to the extent that QL completed a 1-for-5 bonus issue in January 2010 that enlarged its share base. Investors will still share in its 20.5% and 13.3% net profit growth in FY10 and FY11 without dilution. Our RM4.56 DCF-based target price assumes a conservative 2% terminal growth rate and 6.6% weighted average cost of capital. - Maybank IB, May 4
This article appeared in The Edge Financial Daily, May 5, 2010.
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