January 14, 2011

QL - Sabah plants to contribute significantly to QL

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: OSK

QL Resources Bhd
(Jan 13, RM5.92)
Maintain 'buy' at RM5.86 with target price of RM6.88
: Recently, we took a group of 10 fund managers and analysts to Kota Kinabalu, Sabah on a visit to QL's poultry farm and marine plant. The two-day visit started with a tour of its broiler farms followed by a presentation and a visit to the marine plant where surimi, fishmeal and frozen fish are produced and where deepsea fish is processed. The plants are equipped with automated machines, are clean and organised, and comply with EURO and HACCP standards. The management conducted a briefing, which was followed by questions from the visitors that focused on QL's operations.

QL has nine marine manufacturing plants and six poultry farms in Malaysia, which include one marine manufacturing plant in Kota Kinabalu and three poultry farms in Kota Kinabalu, Tawau and Kuching. Its marine manufacturing plant and poultry farm in Kota Kinabalu, Sabah produce 20%-30% of its total surimi and fishmeal production and 17% of total broilers production/year.

QL is now replicating its success in Indonesia (setting up a surimi and fishmeal plant and at the same time constructing breeder and layer farms) and Vietnam (setting up layer farm). All these expansion plans are on track for completion and to achieve the targeted production volume between end of FY11 to 1QFY13. On the other hand, the group has planted 8,200ha in its new oil palm estate in Kalimantan, Indonesia and aims to finish planting 15,000ha by FY14. It is also targeting to commence production of its biogas and palm pellet plants by early February 2011.

We like QL for its experienced and hands-on management, its leadership in the poultry and marine manufacturing industry, which also helps to lower cost of production, its ability to ride through tough times and the replication of its strategy in Vietnam and Indonesia, which all serve to drive the group to a higher level. Hence, we maintain our 'buy' call on the stock, with a target price of RM6.88, based on 16 times CY12 EPS. Meanwhile, QL has proposed to acquire 51% stake in Pilihan Mahir SB, an associate of QL Endau Marine, for RM500,000. Upon completion, QL Endau will own 100% of Pilihan Mahir SB. ' OSK Investment Research, Jan 13


This article appeared in The Edge Financial Daily, January 14, 2011.

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