M A L A Y S I A 2 November 2012 Initiate Coverage QL R ESOURCES (QLG MK) A Triple Play Refer to last page for important disclosures. PP 14100/03/2013 (032301) BUY (Initiation) Share Price RM3.17 Target Price RM3.83 Upside +20.8% Company Description Involved in integrated livestock farming (ILF), marine products manufacturing (MPM) and palm oil activities (POA) in Malaysia, Indonesia and Vietnam. Stock Data GICS sector Consumer Staples Bloomberg ticker: QLG MK Shares issued (m): 832.0 Market cap (RMm): 2,637.4 Market cap (US$m): 864.2 3-mth avg daily t'over (US$m): 0.2 Price Performance (%) 52-week high/low RM3.38/RM2.86 1mth 3mth 6mth 1yr YTD 0.6 0.6 0.6 8.6 2.9 Major Shareholders % CBG Holdings 44.9 Farsathy Holdings 12.9 FY13 NAV/Share (RM) 1.12 FY13 Net Debt/Share (RM) 0.56 Price Chart 90 100 110 120 2.60 2.80 3.00 3.20 3.40 3.60 (%) (lcy) QL RESOURCES BHD Ql Resources Bhd/FBMKLCI Index 0.00 2.00 4.00 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Volume Source: Bloomberg Analysts Vincent Khoo, CFA +603 2147 1998 [email protected]Moey Su-En +603 2147 1987 [email protected]We initiate coverage on QL Resources (QL) with a BUY call and target price of RM3.83. Helmed by Dr Chia Song Kun and family, QL had its humble beginnings in fishing and farming and has not grown to be involved in marine product manufacturing (MPM), integrated livestock farming (ILF) and palm oil activities (POA). Today, QL not only has operations across Malaysia but has recently expanded to Indonesia and Vietnam. Hatching multi-year gains, backed by its sensible growth strategy and impressive 10-year earnings CAGR of 15%. We have forecasted QL to register net profit CAGR of 17.4% in FY13-15 supported by the stable growth and expansion strategies which is on course to bear fruits. Growing fleet of surimi operations. A regionally entrenched surimi and fishmeal producer that commands market shares in Malaysia of 50-60% and 30% respectively, QL is steadily extending its manufacturing base beyond Malaysian shores into Indonesia. The Indonesian plant, which started with just 5,000MT/year capacity for both surimi and fishmeal production in FY11, has quickly become profitable and QL has set its sights on doubling capacity within FY13. The expansion will enhance MPM’s earnings by 10% in FY14 when full contributions kick in. Spreading out its eggs well. Currently the key earnings driver for QL, the ILF division is poised to deliver a 7.7% pre-tax profit (PBT) CAGR in FY13-15, to account for 53.8% of group profits in FY13, as it further expands the a) layering businesses in Malaysia, Indonesia, Vietnam which lift its regional egg producing capacity by 25% to 4.5 million eggs per day (epd) from the current 3.65m epd, b) doubling of capacity of its breeding business in Indonesia to 2.5m day old chicks (doc) per month. Plantation division to be the next growth driver. The plantation division is expected to deliver a PBT of RM17.5m in FY13F to account for 8.9% of group PBT. This division is poised to deliver a 32.7% PBT CAGR in FY13-15, as its young oil palm plantation (20,000 ha) in Eastern Kalimantan, Indonesia reach maturity in phases. Production of fresh fruit bunches (FFB) are expected to rise two folds to 115,000 MT from FY13 to FY15. Key Financials Year to 31 Mar (RMm) 2011 2012 2013F 2014F 2015F Net turnover 1,777 1,947 2,172 2,435 2,579 EBITDA 129 131 146 182 205 Operating profit 175 185 211 254 282 Net profit (rep./act.) 125 131 149 182 205 Net profit (adj.) 125 131 149 182 205 EPS (sen) 15.0 15.8 17.9 21.9 24.6 PE (x) 21.2 20.1 17.8 14.5 12.9 P/B (x) 3.6 3.2 2.8 2.4 2.1 EV/EBITDA (x) 24.9 24.5 21.9 17.6 15.6 Dividend yield (%) 1.1 1.1 1.4 1.7 1.9 Net margin (%) 7.0 6.8 6.8 7.5 7.9 Net debt/(cash) to equity (%) 51.1 61.0 50.4 40.8 28.5 Interest cover (x) 7.4 6.2 7.0 8.7 9.8 ROE (%) 20.1 17.0 17.0 18.1 17.6 Consensus net profit - - 163 187 208 UOBKH/Consensus (x) - - 0.91 0.97 0.99 Source: QL Resources., Bloomberg, UOB Kay Hian
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Company Name 2 1
M A L A Y S I A
2 November 2012 Initiate Coverage
Q L R E S O U R C E S ( Q L G M K )
A Triple Play
Refer to last page for important disclosures.
PP 14100/03/2013 (032301)
BUY (Initiation)
Share Price RM3.17 Target Price RM3.83
Upside +20.8%
Company Description Involved in integrated livestock farming (ILF), marine products manufacturing (MPM) and palm oil activities (POA) in Malaysia, Indonesia and Vietnam.
We initiate coverage on QL Resources (QL) with a BUY call and target price of RM3.83. Helmed by Dr Chia Song Kun and family, QL had its humble beginnings in fishing and farming and has not grown to be involved in marine product manufacturing (MPM), integrated livestock farming (ILF) and palm oil activities (POA). Today, QL not only has operations across Malaysia but has recently expanded to Indonesia and Vietnam.
Hatching multi-year gains, backed by its sensible growth strategy and impressive 10-year earnings CAGR of 15%. We have forecasted QL to register net profit CAGR of 17.4% in FY13-15 supported by the stable growth and expansion strategies which is on course to bear fruits.
Growing fleet of surimi operations. A regionally entrenched surimi and fishmeal producer that commands market shares in Malaysia of 50-60% and 30% respectively, QL is steadily extending its manufacturing base beyond Malaysian shores into Indonesia. The Indonesian plant, which started with just 5,000MT/year capacity for both surimi and fishmeal production in FY11, has quickly become profitable and QL has set its sights on doubling capacity within FY13. The expansion will enhance MPM’s earnings by 10% in FY14 when full contributions kick in.
Spreading out its eggs well. Currently the key earnings driver for QL, the ILF division is poised to deliver a 7.7% pre-tax profit (PBT) CAGR in FY13-15, to account for 53.8% of group profits in FY13, as it further expands the a) layering businesses in Malaysia, Indonesia, Vietnam which lift its regional egg producing capacity by 25% to 4.5 million eggs per day (epd) from the current 3.65m epd, b) doubling of capacity of its breeding business in Indonesia to 2.5m day old chicks (doc) per month.
Plantation division to be the next growth driver. The plantation division is expected to deliver a PBT of RM17.5m in FY13F to account for 8.9% of group PBT. This division is poised to deliver a 32.7% PBT CAGR in FY13-15, as its young oil palm plantation (20,000 ha) in Eastern Kalimantan, Indonesia reach maturity in phases. Production of fresh fruit bunches (FFB) are expected to rise two folds to 115,000 MT from FY13 to FY15.
Investment Highlights We initiate coverage on QL with a long term BUY call and a target price of RM3.83, pegged to a target calendarised 2014F PE of 16x which is inline with its 3-year average forward PE multiple. We foresee more investors flocking to QL for its defensive food-based businesses and as trading volume reach a certain liquidity threshold. QL’s growth will feed on the steady rise in a) food consumption demand, led by strong population growth in Asia coupled with the emergence of Asia’s middle class income group that ultimately leads to the rise in per capita consumption, and b) rising food inflation particularly with the recent rollout of the quantitative easing by the key global economies which should see commodity prices on the upward trajectory as history suggests. We like QL’s consistent growth, led by the company’s savvy founders’ growth strategy which has laid the tracks for multi-year earnings gains. Earnings are driven by two key divisions, namely ILF division as well as the MPM division. Hatching multi-year gains, backed by its sensible growth strategy and impressive 10-year earnings CAGR of 15%. QL’s impressive track record rests on the founding Chia family’s strategy of creating synergistic competencies within the supply chain of MPM (from fishing into surimi and surimi-based product manufacturing and fishmeal) and ILF (feed raw material trading, doc, broiler and eggs production). QL’s timely entry into oil palm plantation in 2010 is on course to provide greater earnings growth visibility as its mature acreage grows. We have forecasted QL to register a net profit CAGR of 17.4%. Growing fleet of surimi operations. QL is a regionally entrenched surimi and fishmeal producer commanding a 50-60% market share and a 30% market share in the respective market segments in Malaysia. QL is on course to grow its regional market share with its successful entry into Indonesia. Since stepping foot into Indonesia with just 5,000MT/year capacity for both surimi and fishmeal production in FY11, QL has swiftly achieved profitability and has set its sight on doubling the capacity to 10,000 MT/year by FY13. The expansion will enhance earnings by an estimated 10% (equivalent to RM10m) in FY14 when full contributions kick in. Spreading out its eggs well. The ILF division is poised to deliver a 7.7% PBT CAGR over the next three years, to account for 53.8% of group profits in FY13, as it further expands the a) egg production businesses in Malaysia, Indonesia and Vietnam will lift its regional egg producing capacity by 25% to 4.5m epd from the current 3.65m epd, b) doubling of capacity of its breeding business in Indonesia to 2.5m day old chicks (doc) per month. Plantation division to be the next growth driver. We predict that the plantation division will deliver a PBT of RM17.5m in FY13 to account for 8.9% of group PBT. The plantation division is poised to deliver a 32.7% PBT CAGR in FY13-15, as its young oil palm plantation (20,000 ha) in Eastern Kalimantan, Indonesia mature in phases. Production of FFB are expected to rise by over two folds to 115,000 MT from FY13 to FY15. Our forecasts exclude the modest benefits expected from its palm pelletising project, which will commence commercial operations in Jan 13.
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Valuation Our target price of RM3.83 pegged to a target PE of 16x 2014F PE. The target PE is based on QL’s 3 year average trading valuation range of 16x. Our target PE also takes into account the lower dividend payout (<30% in the past two years) and yield (<2%) vis-à-vis other consumer plays which offer much higher dividend payouts and yields of over 80% and 4% respectively. However, we do expect QL to begin doling out more dividends to shareholders as capex begins to taper off. Steady appreciation anticipated. Since attaining sufficient profit levels and trading liquidity since end-09, QL has broken out from a low prospective PE trading range of 11-13x, to an average of 16x over the past three years. However, we note that its PE valuations have been trending down from its 3-year average range since 2010 (refer to chart below), despite the big leap in major consumer companies’ PE valuations over the past year. Hence, we expect QL to deliver steady capital appreciation over time to mainly reflect gradual re-rating in tandem with its earnings growth, and to a minor extent, a slight PE expansion that aptly reflects its favourable growth and PE/cagr ratio relative to the large cap Malaysian consumer companies. Figure 1: 3-year PE Band
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Undemanding vis-à-vis its peers. QL currently trades at 14.5x 2014F PE which is undemanding vis-à-vis other consumer plays (ie. Nestle, Guinness, Carlsberg etc.) that trades at 14x-27x 2014F earnings. QL also could potentially deliver a 2013-15 earnings CAGR of 17.4% which is well above most of the peers’ CAGR. Figure 2: PE To CAGR Ratio
Operating cash flow-to-capex ratio is set to improve dramatically. QL’s operating cash flow-to-capex is set to improve further to 1.34x and 1.36x FY13 and FY14 respectively. Figure 4 shows that the operating cash flow-to-capex ratio has improved slightly to 0.62x and 0.67x in FY11 and FY12 respectively. We expect this upward trend to continue as: a) Operating cash flow generation is expected to substantially improve over
time as earnings visibility will improve as its various investments start to generate income while working capital requirement remains moderate. We forecast operating cash flow to improve to RM284m in FY13 and RM261m in FY14. Resilient earnings coupled with moderate working capital requirements have allowed QL to consistently churn out strong cash flows for the past decade; and
b) Capex is expected to be lower in FY13-15 after peaking in FY12 at RM250m
post its multi-country business expansion in Malaysia, Indonesia and Vietnam. We have forecasted QL’s capex to taper off slightly to RM200m in FY13 and RM180m in FY14, mainly incorporating the new plantings of oil palm trees which is expected to be completed by 2015 and further expansion in Indonesia.
Improving leverage... QL’s long term debt to shareholders’ equity is set to improve to 23% in FY13 and 20% in FY14 as its capex is expected to taper off after peaking in FY12. In FY12, QL saw its long term debt/shareholders equity increase to 26% from 22% in FY11 which was proportionate to the increase in capex. …could lead to a better dividend payout ratio. We think there is a possibility that the dividend payout ratio could improve as net debt/EBITDA is expected to trickle down to 1.5x in FY13 and 1.1x in FY14 (FY12: 2.1x). We have forecasted a net dividend payout ratio of 30% in FY13 on better earnings visibility. The net dividend payout ratio of 30% is inline with the company’s policy of distributing at least 25% of its earnings to shareholders. Figure 4: Cash Flow To capex Figure 5: Leverage Set To Improve Over Time
Deep sea fishing (000 MT) 10 10 10 10 10 Source: QL, UOB Kay Hian Leading MPM player in Malaysia and Asia. QL is one of the leading marine product players in Malaysia as well as in Asia being one of the few fully integrated MPM players in a fragmented industry. To date, QL has four processing plants in Malaysia (both in Peninsula Malaysia and in East Malaysia) and one in Indonesia. QL currently commands a market share of 50-60% and 35% respectively in Malaysia’s surimi and surimi-based product industry with a total production capacity of 25,000 MT/year and 35,000 MT/year respectively. QL also has a total capacity of 35,000 MT/year for fishmeal and a deep sea fishing capacity of 10,000 MT/year. Figure 7: Details And Location Of QL’s Marine Plants And Activities MPM Activities Market Share Location Country Production Capacity
Hutan Melintang, Perak Endau, Johor Tuaran, Sabah
Malaysia 25k MT per year Surimi 50-60% share in Malaysia
Surabaya Indonesia 5k MT per year (to increase to 10k MT per year by Sep 2012)
Hutan Melintang, Perak Endau, Johor Tuaran, Sabah
Malaysia 25k MT per year Fishmeal 30% share in Malaysia
Surabaya Indonesia 5k MT per year (to increase to 10k MT per year by Mar 2013)
Surimi-based products
35% share in Malaysia
Hutan Melintang, Perak Johor Bahru, Johor
Malaysia 35k MT per year (to increase to 50k MT per year by June 2013)
Deep sea fishing Insignificant, fragmented industry
Surimi is a fish-based food product that has been pulverized to a thick paste. Generally, white meat fish that are low in commercial value and are mostly found in shallow waters are used in the production of surimi, such as: 1. Threadfin bream 2. Lizard fish 3. Big eye, ox-eye scad 4. Croaker, jewfish 5. Goatfish 6. Barracuda 7. Ribbon fish, Hairtail 8. Pike Conger 9. Greenling
Surimi-based products are made from surimi and is made into fish balls, fish cake, fish sausage, etc.
Fishmeal is made from fish bones or the offal remaining. It is made by cooking, pressing, drying and grinding the fish. Fishmeal is primarily used in the commercial diets for poultry, swine, dairy cattle, mink and fish.
Source: UOB Kay Hian Stable growth ahead. The MPM division is poised to deliver a 2013-2015 PBT CAGR of 10.2% on the back revenue CAGR of 9.7% underpinned by its expansion plans both in Indonesia and in Malaysia in FY13. We are expecting this division to register a PBT yoy growth of 12% in FY13 and 19.7% yoy in FY14, contributing 37.3% and 36.4% respectively to group PBT. Surimi and surimi-based product manufacturing to lead growth. Surimi and surimi-based products segment are expected to lead the growth of the MPM division, delivering a growth of 9.4% yoy (equivalent to RM53.7m) in FY13, and accounting for 73.1% of MPM’s FY13 PBT. Meanwhile, we are expecting the fishmeal business to deliver an 8.5% yoy growth (equivalent to RM17.9m) in FY13. In FY12, QL’s surimi and surimi-based product manufacturing were the biggest contributors to the MPM division, accounting for over 66% of MPM’s FY12 PBT while fishmeal accounted for 28.3% of MPM’s FY12 PBT. Meanwhile, QL’s deep sea fishing operations remained the smallest earnings contributor in the MPM division. Figure 9: MPM Revenue Breakdown Figure 10: MPM PBT Breakdown
Growing network of export markets. Export of QL’s marine products, has accelerated over the years. From its humble beginnings of just distributing to local supermarkets and retail outlets nationwide, QL now exports both surimi and surimi-based products to over 15 countries including Singapore, China, Korea, Japan which have been seeing a growing demand for quality surimi and surimi-based products. To date, Japan remains the largest export market for QL, contributing about 50% of QL’s export revenue (or 10% of QL’s revenue). Overall, export sales account for 25% of the MPM division’s total revenue. QL targets to expand its exports to Indonesia and China where the consumption of surimi and surimi-based products are relatively low. The most profitable division, with sustainable margins. The MPM division is the most profitable division, delivering a sustainable average PBT margin of 13-15% over the past five years, despite the rising raw material cost, attributable to a) the easy shift of production between surimi and surimi-based products whereby surimi-based products command a slightly higher margin which works to defend margins, b) stable pricing for surimi and surimi-based products, c) growing demand for surimi and surimi-based products, and d) stable pricing power. We expect this division to continue to be the most profitable and stable, churning a PBT margin of almost 14% over the next three years, supported by the continued burgeoning demand for marine products coupled with the expected price inflation for food products. Figure 11: Surimi Price (Based On Austrian Pollock Price)
Note: Asian surimi prices have been more stable Source: FIS
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Entering Indonesia... Currently, over 90% of QL’s local fish requirements for the production of surimi and surimi-based products are met by third-party fishermen. However, fish landing has been showing signs of a growth slowdown (refer to Fig 12) as the Malaysian waters (particularly in the South China Sea) have been overexploited and could see a potential decline in the supply of raw materials in the coming years. The MPM operations in Malaysia registered a moderate PBT CAGR of 6% in FY09-11, notwithstanding production capacity expansion, as earnings could be capped by fish supply, particularly for QL’s operations in Peninsular Malaysia. As such, QL entered the Indonesian shores in 2011, initially investing about RM50m to operate surimi and fishmeal production plants with the production capacity of 5,000MT/year and is now investing another RM50m to double the capacity to 10,000MT/year for both the surimi and fishmeal plants in Sep 2012 and Mar 2013 respectively. ...which significantly lifts earnings. Assuming a) full contribution from the capacity expansion and b) a sustainable PBT margin of 14%, we estimate that the Indonesian operations will lift MPM’s PBT by 30% (equivalent to RM20m). Full contribution from these new expansions is expected only kick in from FY2014 onwards. To date, QL’s Indonesian operations have contributed about 5% to MPM’s FY12 PBT. The payback period for its Indonesian operation is estimated to be about 4 years. Untapped Indonesian waters...The fishery and marine products sector in Indonesia remains under-penetrated as a) investment in this sector remains very low at just <1% of the country’s total investments by both domestic and foreign investors (ie. Japan, Thailand, etc) and b) low per capita consumption of fish or fish-based products of at about 30.5kg per year vs. Malaysia’s 55kg per year and Singapore’s 37kg per year. …could be the next growth engine for QL. We opine QL stands to benefit from its timely expansion into Indonesia as: a) Supply of raw material is abundant. Raw material supply to produce surimi
and fishmeal is abundant given the higher production in fish landing as Indonesia has one of the widest sea territories and is the fourth largest aquaculture producing country. We note that Indonesia has five times more production in fish landing than Malaysia (as shown in Fig 12) at over 5m tons, and has registered a CAGR of 2.5% over the past decade compared to Malaysia which registered just 1.6%.
Source: FAOStat, Badan Pusat Statistik, UOB Kay Hian
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b) Demand for surimi will grow in time as dynamics change. Demand for marine products, particularly surimi and surimi-based products, would grow in time on the back of robust growth in population as well as a large portion of population poised to join the middle class income category coupled with lifestyle changes of this category which has a preference for quick and easy-to-cook nutritious food.
c) Local fishmeal production is becoming increasingly important as the cost to
import fishmeal has escalated over the years (refer to Fig 14) and is now sold for US$1,800/MT. Although demand for fishmeal in Indonesia is around 150,000 tons p.a. (about 140,000 MT) while local production capacity is 175,000 tons p.a. (about 160,000 MT), capacity utilisation is still low largely due to the lack of know-how of local fishmeal production. In 2010, fishmeal production stood at just slightly over 30,000 tons which was not sufficient to satisfy demand. With the escalating price of fishmeal and lack of supply, there has been a need for Indonesia to depend on imports of fishmeal.
Figure 13: Fishmeal Price
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Spreading Out Its Eggs Well Figure 14: ILF Earnings Summary And Assumptions Year to 31 Mar (RMm) 2011 2012 2013F 2014F 2015F
Revenue 994.1 1,118.4 1,261.5 1,386.1 1,421.4 PBT 92.1 98.1 105.9 124.2 132.3 PBT Margin (%) 9.2 8.8 8.4 9.0 9.3 PBT Growth 26.8 6.6 7.9 17.3 6.5 Production Capacity Raw material distribution (000 MT)
Source: QL, UOB Kay Hian Leading raw material distributor and egg producer in Malaysia. QL is a full fledged poultry player (with principal activities in corn and soybean meal distribution, chicken breeding as well as layering and broiler production) with a significant presence in Malaysia. To date, it has a 12% market share in the egg production industry with a production capacity of about 3m eggs (second after Huat Lai Resources). Notably, QL has a stronghold in the egg production industry in East Malaysia with an estimated market share of 50%. Meanwhile, it is also one of the industry leaders in raw material (corn and soybean meal) distribution with a capacity of 650,000 MT per year, translating to a market share of about 20% in Malaysia. Figure 15: Details And Location of QL’s Marine Plants And Activities
ILF Activities Market Share Location Country Production Capacity
Kulim, Kedah Rawang, Selangor Pajam, Negeri Sembilan Kota Kinabalu, Sabah Tawau, Sabah
12% in Malaysia. Other players include Huat Lai, LTKM, Lay Hong, Teo Seng Capital, etc Kuching, Sarawak
Malaysia 3m epd
Fragmented industry
Cianjur, Bandung Indonesia 350,000 epd
Layering (Egg production)
Fragmented industry
Tay Ninh, Vietnam Vietnam 300,000 epd
Kota Kinabalu, Sabah Tawau, Sabah
Broiler Fragmented industry
Kuching, Sarawak
Malaysia 7m broilers per year
Tawau, Sabah Fragmented industry Kuching, Sarawak
Malaysia 1.3m DOC per month Breeding (Day old chicks)
Fragmented industry
Cianjur, Bandung Indonesia 1.3m DOC per month (to increase to 2.5m by Mar 2013)
Animal feed raw material trade (corn & soybean meal)
20% market share in Malaysia
Peninsula and East Malaysia Malaysia 650k MT
Source: QL, UOB Kay Hian Expect earnings CAGR of 7.7% ahead, led by growth strategies across three countries. We expect the ILF division to deliver a 2013-15 PBT CAGR of 7.7% on the back of a revenue CAGR of 4.1% as we expect the contribution from its expansion strategies in the layering, breeding and broiler businesses across the three countries (Malaysia, Indonesia and Vietnam) to kick in.
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Growing contribution from the layering business... The most significant growth will stem from its expansion of its layering business in Malaysia, Vietnam and Indonesia (Figure 16). These expansion plans will lift QL’s total egg production capacity by 25% by FY14 from the current capacity of 3.65m epd, enhancing earnings from the layering business by about 40%. We have forecasted a PBT of RM34.3m in FY13, a slight 2% contraction to take into account a) the egg glut situation in Malaysia back in Jul-Aug 12 which saw egg prices decline, and b) an egg shortage issue in Oct-Nov 12 which saw volumes fall as the smallholders began to cull the old laying hens to control the egg production volume. However, the layering business continues to be significant to ILF’s PBT, accounting for 32% of the ILF PBT in FY13 and the contribution is expected to grow further to 37% of ILF PBT in FY14 or equivalent to RM45.7m on the back of a recovery in the egg shortage situation. Figure 16: Layering Business Expansion Plans And Details
epd (currently) epd (after expansion) Timeline
Malaysia 3,000,000 3,300,000 Mar 13
Indonesia 350,000 900,000 Mar 13
Vietnam 300,000 350,000 Mar 13
Source: QL Resources, UOB Kay Hian …overtaking the contribution from the feed raw material distribution. Over the years, QL’s feed raw material trade business has been the mainstay of this division despite its relatively low margin. To illustrate, QL imports raw materials – corn and soybean meal – from the US and Europe. Generally, QL hedges 50% of its raw materials about 3-4 months in advance and the rest are bought at spot price. 80% of the raw materials are then sold to other poultry players to be turned into feedmill while 20% are kept for internal usage. The trading margin of feed raw materials is narrow at 3-4%, which would imply that in any downturn in raw material prices, the trader would stand to lose out. In FY12, the raw material distribution was the most significant contributor to the ILF division, accounting for 45.5% of PBT (equivalent to RM44.6m). However, we are expecting the contribution from this business to decline to 42.5% in FY13 (equivalent to RM48.1m) and further down to 37.7% in FY14 (equivalent to RM48.6m). The decline is attributable to the narrow trading margins (fixed at 3-4%) coupled with the limited storage capacity of 650,000 MT of corn and soybean meal. However, contributions from this division could also come off should corn and soybean meal prices continue on the downtrend. Figure 17: ILF Revenue Breakdown Figure 18: ILF PBT Breakdown
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Figure 19: Corn And Soybean Meal Prices
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Source: Bloomberg Contributions from Indonesian poultry operations to kick in... QL’s first poultry farm in Indonesia is set to post its maiden contributions in FY13 of about RM10m (equivalent to 10% of FY13 ILF PBT). QL had invested RM20m in FY12 to expand its ILF operation to Indonesia in the breeding and layering business with a production capacity of 15.6m doc per year and 350,000 epd respectively. Looking ahead, QL will be expanding both its broiler and egg business to 24m doc and 900,000 epd by Mar 2013 as demand for both commodities is expected to escalate. Full contribution of this expansion will kick in by FY14. We are expecting this expansion to contribute about RM18m (equivalent to 25% to ILF division’s PBT). …but Vietnam may take some time. Besides Indonesia, QL also invested RM35m in FY12 to expand its ILF operations to Tay Ninh, Vietnam in the layering business with a production capacity of 300,000 epd and is looking to expand to 350,000 epd by Mar 13. However, the operations in Vietnam is still the reds, recording a loss of RM2m-3m due to a) start up costs incurred, b) depressed egg prices due to the lingering oversupply issue that has been worsened by the mandatory import quota allocation of 30,000 dozen eggs into the country, and c) rising production costs.
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Malaysian poultry prices have increased over the years… Malaysian egg and doc prices have been rising steadily over the past few years (refer to Fig 20 and 21). The only year that saw egg price decline sharply was in 2006 when the avian flu threat (H1N1) hit. Separately, the doc price appears more volatile as chicks are generally more susceptible to poultry diseases such as the recent Newcastle disease which affects the demand and supply of doc. …and will continue to inch up despite some hiccups in production... Three months ago, the egg production market, particularly in Peninsular Malaysia, was faced with a glut in production due to the aggressive expansion of egg production by smallholders in the past year when egg prices soared, breaching a new high of 35 sen per egg for Grade A and 33.5 sen for Grade C. Recently, Grade A eggs are now going for as low as 23 sen each while Grade C has hit a low of 18 sen. However, prices have corrected as poultry players have been culling old layer hens and delaying the delivery of new chicks in reaction to the earlier glut in production as well as soaring feedmeal costs (up 80% ytd). Corn and soybean meal, which is used in stockfeed for chickens, accounts for 80% of production costs. However, poultry players have culled more than the normal 10% of their old layer hens in each cycle, which then leads to an egg shortage. Current egg prices have increased and are now 28 sen for Grade A eggs while Grade C eggs are 22 sen each. Figure 20: Egg Price In Malaysia Figure 21: Broiler Price In Malaysia
10
15
20
25
30
35
40
Jan-
04
Jul-
04
Jan-
05
Jul-
05
Jan-
06
Jul-
06
Jan-
07
Jul-
07
Jan-
08
Jul-
08
Jan-
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Jul-
09
Jan-
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Jul-
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Jan-
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Jul-
11
RM
sen/
unit
Grade A Grade C
0.00
0.50
1.00
1.50
2.00
2.50
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04
Jun-
04
Dec
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6/27
/05
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-05
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Price/Bird (RM)Non-Cobb Cobb
Source: FLFAM, UOB Kay Hian Source: FLFAM, UOB Kay Hian
…backed by steady demand… Demand for both eggs and chicken have always been solid as both are the cheapest source of meat protein and the most popular among Malaysian consumers as there are no religious restrictions against the consumption of chicken meat and eggs. To date, Malaysia continues to have one of the highest per capita consumption rate in the world for chicken (broilers) at 40kg and eggs at 330 units.
QL Resources 16
Low per capita consumption in Indonesia and Vietnam... Although Indonesia is fairly self-sufficient in terms of poultry production, the Indonesian government has targeted to increase the people’s consumption of both chicken and eggs over the coming years as consumption for both these commodities remain below par compared to the other ASEAN countries. Meanwhile, Vietnam is considerably lacking in commercial production of chicken and eggs as most of the poultry production operations are kept in small households. However, the government encourages commercialised chicken and egg production and plans for tripling chicken per capita consumption and almost doubling egg per capita consumption. Chicken per capita consumption is about 3 chickens per year (equivalent to 7.6 kg) in both Indonesia and Vietnam which pales significantly from Malaysia (16 chickens per year or equivalent to about 40kg) (refer to Figure 22). Meanwhile, egg per capita consumption in Indonesia and Vietnam are also very low at just 87 eggs and 96 eggs respectively vis-à-vis Malaysia’ 330 eggs per year. Figure 22: Egg And Broiler Meat Per Capita Consumption
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unit
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Source: The Poultry Site, UOB Kay Hian …but the paradigm is shifting upwards. The demand for poultry products is increasing which reflects the change in tastes and preferences coupled with the increase in disposable income as the middle class income group expands. Figure 24 shows the growing per capita consumption of both eggs and chicken over the past decade on the back of an increase in population and per capita income.
Figure 23: Per Capita Income Is Growing
Figure 24: Per Capita Consumption Of Eggs And Chicken Is Growing
Per capita consumption of poultry meat in Indonesia
Per capita consumption of poultry meat in Vietnam
Source: IMF Source: FaoStat, UOB Kay Hian
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Plantation Division – The Next Growth Driver Figure 25: Key Assumptions
Year to 31 Mar 2013F 2014F 2015F 2016F 2017F
Matured Hectares 8,000 9,700 11,399 13,399 15,399
Malaysia 1,200 1,200 1,200 1,200 1,200
Indonesia 6,800 8,500 10,199 12,199 14,199
Average FFB Produced (MT) 50,000 85,000 115,000 130,000 200,000
Blended FFB yield 6.25 8.76 10.09 9.70 12.99
OER (%) 21.0 21.0 21.0 21.0 21.0
CPO Production (MT) 10,500 17,850 24,150 27,300 42,000
CPO Price (RM/MT) 3,000 3,000 2,950 3,000 3,000
Production Cost (RM/MT) 1,500 1,500 1,400 1,400 1,300
Total Revenue (RMm) 31.5 53.6 71.2 81.2 126.0
Total PBT (RMm) 15.8 26.8 37.4 43.7 71.4
Source: UOB Kay Hian, QL Resources Maturing profile growing… QL currently owns two palm oil estates – a 1,200 ha mature plantation in Sabah as well as a 20,000 ha plantation in Eastern Kalimantan, Indonesia that is still under development. Out of the 20,000 ha in Indonesia, 9,500 ha has been planted whereby almost 4,000 ha is considered mature area whereby the average age of trees is about 5 years. QL intends to plant about 1,500-2,000 ha annually and should finish planting by FY15. Figure 26: Young Tree Profile
Immature (1-3 years), 60%
Young (4-8 years), 40%
Source: QL, UOB Kay Hian …which will expand contributions. We have forecasted the group’s plantation division to churn an EBIT of RM17.5m for FY13 (19.2% yoy) and RM29.3m for FY14 (67.7% yoy) – of which, over 90% will be derived from the harvest of its own plantation and the rest from third party CPO milling. This essentially lifts the group’s PBT by 9% and 13% respectively. Our forecasts are premised on a formidable increase in matured area to 8,000 ha in FY13 and 9,700 ha in FY14 which raises FFB production from 34,279 MT in FY12 to 50,000 MT in FY13 and 85,000 MT in FY14 and consequently raises CPO production volume. Looking ahead, we expect a PBT of RM40.9m in FY15.
QL Resources 18
In FY12, the plantation division contributed 8% to group PBT, equivalent to RM14.7m (177% yoy) driven by its FFB production volume which escalated to 34,279 MT from a mere 1,676 MT. Significant potential upside ahead in the long term. Based on our estimation, QL’s own plantation could generate RM135m to group PBT, almost doubling QL’s FY12 PBT. We simulate the potential earnings contributions from the plantation business assuming: a) plantation area is fully developed and matured, b) FFB yield and OER of 21MT/ha and 22% respectively, inline with other plantation players which have existing plantation area in Kalimantan, c) sustainable long term CPO price of RM3,000/MT (and a base case of RM2,500/MT), and d) average production cost of RM1,200/MT. Figure 27: Plantation Earnings Simulation
Scenario A Scenario B
Fully Planted and Matured Hectares (ha) 16,200 16,200
Malaysia 1,200 1,200
Indonesia 15,000 15,000
Average FFB Produced (MT) 340,200 340,200
Blended FFB yield (MT/ha) 21.0 21.0
OER (%) 22.0 22.0
CPO Production (MT) 74,844 74,844
CPO Price (RM/MT) 3,000 2,500
Production Cost (RM/MT) 1,200 1,200
Total EBIT (RMm) 134.7 97.3
Source: UOB Kay Hian Figure 28: Per Capita Income Is Growing
Figure 29: Per Capita Consumption Of Eggs And Chicken Is Growing
0
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12,000
2011 2012 2013E 2014E 2015E
ha
5-year cagr: 98%
0
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60,000
80,000
100,000
120,000
140,000
2011 2012 2013E 2014E 2015E
MT
5-year cagr: 188%
Source: QL Resources, UOB Kay Hian Source: QL Resources, UOB Kay Hian
Sufficient capacity to cope with the FFB growth. QL has three CPO mills – two in Tawau, Sabah which has a production capacity of 600,000 MT p.a. and another in Kalimantan, Indonesia with a production capacity of 500,000 MT p.a..
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At present, the two CPO mills in Tawau sources FFB from small and medium sized estates in the Tawau and Kunak regions in Sabah. In FY12, CPO milling activities registered a loss before tax of RM5.7m due to the poor crop production as well as rising competition from the other nearby independent mills. However, we are expecting FY13 to see a turnaround, delivering a PBT of RM1.8m as QL has carried out cost cutting measures. However, poor crop production may still linger for a few more quarters. Currently, both mills are running at an average utilisation rate of about 50-60%. Meanwhile, the CPO mill in Eastern Kalimantan which has just been commissioned in Apr 12 will be more than sufficient to serve QL’s own plantation in Indonesia particularly when most of its planted areas reaches maturity. Turning its waste into treasure. QL is the only company with palm pelletising technology which claims to be the first of its kind in Malaysia. To date, the company has invested RM12m for the research and development and set up of the plant. This technology essentially converts waste from empty FFB to commercial pellet fuel for power utilities biomass programmes. The company has plans to export these palm pellets to China, Japan, South Korea and Europe. Baby steps for now. QL will begin commercial production of palm pellets in Jan 13 beginning with 1,000MT per month and will eventually increase this to 2,000MT per month. However, we have not imputed any contributions from this new venture as contributions will be very insignificant in FY13 as commercial production volume remains small. Figure 30: Palm Pelletisation Process
Source: QL Resources
Palm Oil Mill (300,000 MT FFB per year)
Palm Kernel Expeller
Palm Kernel Shell
EFB
EFB Pellet Plant
Excess Biomass
Excess Power enables kernel
crushing
On-site biomass Independent Power Plant (IPP)
OR
EFB Pellet Plant
Excess Biomass
Excess Power enables kernel
crushing
On-site biomass Independent Power Plant (IPP)
OR
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Earnings Prospects Figure 31: Financial Snapshot By Segment FYE Mar (RMm) 2011 2012 2013F 2014F 2015F
Revenue MPM 450.4 473.7 534.7 633.9 706.3 POA 332.3 354.8 376.0 415.3 451.0 ILF 994.1 1,118.4 1,261.5 1,386.1 1,421.4 Total 1,776.8 1,946.9 2,172.2 2,435.2 2,578.7 PBT MPM 63.5 65.6 73.4 87.9 98.2 POA 5.3 7.6 17.5 29.3 40.9 ILF 92.1 98.1 105.9 124.2 132.3 Total 160.9 171.3 19.8 241.4 271.3 PBT Margin (%) MPM 14.1 13.8 13.7 13.9 13.9 POA 1.6 4.1 4.6 7.1 9.1 ILF 9.3 8.8 8.4 9.0 9.3 Total 9.1 9.2 9.1 9.9 10.5 PBT Growth (%) MPM 15.2 3.3 12.0 19.7 11.7 POA (33.9) 176.7 19.2 67.7 39.4 ILF 26.8 6.6 7.9 17.3 6.5 Total 18.6 10.9 10.3 22.7 12.4 Net Profit 124.6 131.4 148.6 182.2 204.8 Net profit growth 16.5 5.5 13.1 22.6 12.4 Source: QL Resources, UOB Kay Hian Multi-year gains ahead. We forecast QL to register a healthy 2013-2015 earnings CAGR of 17.4%, underpinned by: a) Continued expansion strategy of the ILF business in Malaysia, Indonesia and
Vietnam, b) Contribution from the MPM division in Indonesia to kick in, and c) Expanding mature profile of its plantation in Indonesia.
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Figure 32: Earnings Prospects Looking Bright
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10-year historical PBT CAGR: 23.2%
Source: QL, UOB Kay Hian Expansion and growth strategies to lift earnings. We estimate QL will deliver a net profit growth of 13.1% yoy in FY13 (to RM148.6m) on the back of a 11.6% growth in revenue (to RM2,172.2m) which is reflective of its expansion and growth strategies of all three business divisions. Looking ahead, we forecast net profit to grow 22.6% and 12.4% in FY14 and FY15 respectively as we have pencilled a 12.1% and 5.9% revenue growth for FY14 and FY15. Essentially, QL’s ILF business will continue to be the core contributor of earnings followed by the MPM division which currently accounts for over 50% of earnings. However, the POA division will see the strongest growth. In FY12, earnings growth was relatively moderate at just 5.5% vis-à-vis its mid-teens growth in the past because the MPM and ILF segments saw milder earnings growth as: a) fishmeal prices took a dip in early 2012, and b) the ILF division was affected by a poultry-related disease - Newcastle disease. Figure 33: Revenue By Segment Figure 34: Net Profit By Segment
Palm oil activities
19%
Marine product
manufacturing25%
Integrated livestock farming
56%
Marine product
manufacturing36%
Integrated livestock farming
54%
Palm oil activit ies
10%
Source: QL Resources, UOB Kay Hian Source: QL Resources, UOB Kay Hian
QL Resources 22
Flattish growth in 2Q12 expected. QL will be announcing its 2QFY12 results in end-Nov 12. We are expecting the earnings growth in 2QFY12 to be flat on a qoq basis (perhaps 2-3% qoq) due to: a) seasonal factors, which will see lower FFB processed, b) weaker CPO prices (-12% qoq), c) lower egg prices (-15% qoq), particularly in Peninsular Malaysia due to the production glut in Jul-Aug 12, and d) poor fish landing in Sabah. Based on past historical quarterly earnings growth trends, growth in 2Q typically recovers significantly coming from a low base of 1Q earnings attributable to the monsoon season (typically from Nov-Jan/Feb), which affects fish landing as well as FFB production. Nevertheless, we expect 3QFY12 to improve: as a) egg prices have corrected, b) fish landing in Sabah would have improved, and c) FFB production is expected to improve after the 2Q seasonal weakness. Traditionally, 3Q appears to be the seasonally strongest quarter whereby earnings peak across all business segments. Figure 35: Quarterly Earnings Trend
0
5
10
15
20
25
30
35
40
45
50
1Q082Q08
3Q084Q08
1Q092Q09
3Q09
4Q091Q10
2Q103Q10
4Q10
1Q112Q11
3Q114Q11
1Q122Q12
3Q124Q
121Q13
RM
m
MPM ILF POA PBT
Source: QL, UOB Kay Hian
Indonesia to be a more significant contributor. We estimate that the earnings from Indonesia could account for about 20% in FY14 when its expansions in both the MPM and ILF divisions kick in. Currently, its Indonesian operations contribute about 8% to group earnings. Essentially, Indonesia will work to be a valuable earnings contributor as QL taps into the country’s robust domestic consumption on the back of a robust growth in population coupled with the growing middle class income group. MPM division to see stable growth. The MPM division is expected to deliver a 12% yoy PBT growth in FY13 to RM73.4m as we expect the contribution from its Indonesian operations to begin to kick in. However, the full contribution from QL’s Indonesian operation will only be recognised from FY15 and beyond given that the surimi plant in Surabaya was recently commissioned in early-Sep 12 while the fishmeal plant will only be commissioned in Mar 2013. We have pencilled a PBT growth of of 19.7% in FY14 and a further 11.7% in FY15 to RM87.9m and RM98.2m respectively.
QL Resources 23
ILF division will continue to drive earnings. We projected the ILF division to deliver a solid 7.9% yoy growth in FY13 PBT to RM105.9m which reflects the contribution from a) the added capacity in its eggs business across Malaysia, Indonesia and Vietnam (production volume is expected to increase by over 24.7% yoy), and b) the increase in production of doc in Indonesia from 15.6m per year to 24m. Essentially, the ILF division will continue to be the key earnings driver for the group, expected to continue contributing over 50% to the bottomline. We are expecting a further 17.3% growth in FY14 and 6.5% in FY15 to RM124.2m and RM132.3m respectively. Exciting growth at the POA division. We are expecting the strongest growth to come from the POA division, which is poised to deliver a 19.2% growth in PBT to RM17.5m in FY13 (FY12: RM14.7m). Currently, the POA division contributes about 8% to group earnings but this should gradually expand to 9% in 2013 and further expand to perhaps 12% by FY14 as its mature acreage increases.
QL Resources 24
Company Background Spearheaded by Dr Chia Song Kun, QL had its humble beginnings in the 1980s and began as a small-scale distribution network for animal feed raw materials. Today, QL is a leading agriculture and resource-based player in Malaysia as well in Asia with businesses in MPM, ILF and POA with its operations spanning Malaysia, Indonesia and Vietnam while its export distribution network spans across four different continents (US, Asia, Europe and Australasia). Figure 36: QL’s Business Segments and Activities
MPM ILF POA
Surimi Eggs Upstream - Plantation
Fishmeal Broiler
Midstream - CPO milling
Day old chicks Surimi-based products
Downstream - Palm Biomass/Palm Pellets
Animal feed raw material trade
Source: QL MPM. QL is involved in both the upstream and downstream activities of MPM which includes surimi, fishmeal, surimi-based products manufacturing and deep sea fishing. Figure 37: Details And Location Of MPM Operations MPM Activities Location Country Production Capacity
Hutan Melintang, Perak Endau, Johor Tuaran, Sabah
Malaysia 25k MT per year Surimi (#1 producer in Asia)
Surabaya Indonesia 5k MT per year (to increase to 10k MT per year by Sep 2012)
Hutan Melintang, Perak Endau, Johor Tuaran, Sabah
Malaysia 25k MT per year Fishmeal (#1 producer in Malaysia)
Surabaya Indonesia 5k MT per year (to increase to 10k MT per year by Mar 2013)
Surimi-based products (#1 producer in Malaysia)
Hutan Melintang, Perak Johor Bahru, Johor
Malaysia 35k MT per year (to increase to 45k MT per year by June 2013)
Deep sea fishing Endau, Johor Tuaran, Sabah
Malaysia 10k MT per year
Source: QL, UOB Kay Hian
QL Resources 25
ILF. QL is a fully integrated poultry player (egg layering, broiler, day old chicks and feed raw material trade) with six poultry farms in Malaysia. It also has poultry farms in Cianjur, Bandung in Indonesia and Tay Ninh, Vietnam. Figure 38: Details And Location Of ILF Operations
ILF Activities Location Country Production Capacity
Kulim, Kedah Rawang, Selangor Pajam, Negeri Sembilan Kota Kinabalu, Sabah Tawau, Sabah Kuching, Sarawak
Malaysia 3 million epd (to increase to 3.3m epd by Mar 2013)
Cianjur, Bandung Indonesia 350k epd (to increase to 900k epd by Mar 2013)
Layering
Tay Ninh, Vietnam Vietnam 300k epd (to increase to 350k epd by Mar 2013)
Kota Kinabalu, Sabah Tawau, Sabah
Broiler
Kuching, Sarawak
Malaysia 7m broiler per year
Tawau, Sabah Kuching, Sarawak
Malaysia 1.3m DOC per month Breeding
Cianjur, Bandung Indonesia 1.3m DOC per month (to increase to 2.5m by Mar 2013)
Animal feed raw material trade (corn & soybean meal)
Peninsular & East Malaysia Malaysia 600k MT
Source: QL, UOB Kay Hian POA. QL has two independent CPO mills which currently services the small and medium sized estates in the Tawau and Kunak regions of Sabah, East Malaysia and has recently commissioned another CPO mill in Eastern Kalimantan, Indonesia (commissioned in April 2012). QL owns a full matured 1,200 ha palm oil estate in Sabah, as well a 15,000 ha plantation in Eastern Kalimantan, Indonesia which is still under development. QL is also involved in the downstream activities such as producing palm biogas and more recently, producing palm pellets which will be used as power for plants. Besides its own in-house operations of upstream and downstream activities, QL had acquired a 40.5% stake in Boilermech Sdn Bhd for RM29m. Boilermech is a leading regional biomass boiler manufacturer. With this acquisition, QL intends to generate costs savings via the expansion into biomass renewable energy. The acquisition of Boilermech provides QL with the know-how of the generation of renewable energy via agriculture. Currently, Boilermech is being equity accounted and contributes about 6% to group earnings.
QL Resources 26
Risk Factors Unfavourable weather conditions. Any unfavourable weather conditions will negatively impact the a) production volume of FFB which is highly sensitive to extreme weathers, and b) supply of fish for the production of fishmeal, surimi and surimi-based products. Fish catch is particularly low during the monsoon seasons. Outbreak of diseases. Any outbreak of diseases (bird or fish-related diseases) could affect the demand and supply of any poultry or fish-related food products and thereby affecting the selling prices as well. Volatility of commodity prices. a) Corn & Soybean meal prices: As earnings from QL’s feed raw material
distribution business is governed by a fixed trading margin range of 3-4%, any sharp decline in prices of these two commodities could see contributions from its feed raw material distribution business contract.
b) Crude palm oil price: Any 1% increase in CPO price will increase earnings by
1% while a 1% drop in CPO price will decrease earnings by 1%. c) Crude oil price: Any increase in crude oil price could increase the cost of
production of the marine products. As QL utilizes third-party fishermen to meet 90% of its raw material requirements for its marine products manufacturing, it is susceptible to the increase in procurement costs particularly if crude oil price increases which will imply an increase in diesel price.
d) Poultry prices: As prices are controlled by the market, QL is susceptible to any
decline in egg prices which could lead to margin erosion. e) Fish prices: Any monsoon season or poor fish landing could lead to increase in
Net interest income/(expense) (17) (21) (21) (21) (21)
Pre-tax profit 161 172 197 241 271
Tax (27) (33) (39) (48) (54)
Minorities (9) (8) (9) (11) (12)
Extraordinary items 0 0 0 0 0
Net profit(rep./act.) 125 131 149 182 205
Net profit(adj.) 125 131 149 182 205
Deprec. & amort. (46) (54) (65) (72) (77)
EBITDA 129 131 146 182 205
Revenue, net 1,777 1,947 2,172 2,435 2,579
Per share data (sen)
EPS - diluted 15.0 15.8 17.9 21.9 24.6
Reported EPS - diluted 15.0 15.8 17.9 21.9 24.6
Book value per shares (BVPS) 88.5 97.5 112.0 129.7 149.6
Dividend per share (DPS) 3.5 3.6 4.3 5.3 5.9
Source: QL, UOB Kay Hian Figure 40: Balance Sheet
Year to 31 Mar (RMm) 2011 2012 2013F 2014F 2015F
Cash/Near cash equiv. 122 102 127 157 241
Accounts receivable/debtors 204 215 202 224 235
Stocks 170 153 176 196 206
Other current assets 89 89 89 89 89
Current assets 585 558 594 665 771
Fixed assets 681 877 1,013 1,121 1,204
Investments 43 70 70 70 70
Other financial assets 156 158 158 158 158
Intangible assets 9 8 8 8 8
Total non-current assets 888 1,112 1,248 1,356 1,439
Total assets 1,472 1,671 1,841 2,021 2,211
Accounts payable/creditors 126 137 179 200 212
Short-term debt/borrowings 268 292 292 292 292
Other current liabilities 5 3 3 3 3
Current liabilities 399 432 474 495 507
Long-term debt 231 304 304 304 304
Deferred tax liability 43 54 54 54 54
Other non-current liabilities 0 0 0 0 0
Total non-current liabilities 274 359 359 359 359
Total liabilities 673 791 832 854 866
Minority interest - accumulated 63 68 77 88 100
Shareholders' equity 736 812 932 1,079 1,244
Liabilities and shareholders' funds 1,472 1,671 1,841 2,021 2,211
Source: QL, UOB Kay Hian
QL Resources 28
Figure 41: Cash Flow
Year to 31 Mar (RMm) 2011 2012 2013F 2014F 2015F
Operating cashflows 131 168 254 245 284
Pre-tax profit 161 172 197 241 271
Tax (23) (23) (39) (48) (54)
Deprec. & amort. 48 56 65 72 77
Working capital changes (64) 16 32 (20) (10)
Others 9 (54) 0 0 0
Cash from investing activities (252) (244) (200) (180) (160)
Capex (growth) (213) (250) (200) (180) (160)
Proceeds from sale of assets 3 2 0 0 0
Others (42) 4 0 0 0
Cash from financing activities 136 46 (29) (35) (39)
Dividend payments (32) (39) (29) (35) (39)
Issue of shares 136 0 0 0 0
Proceeds from borrowings 45 101 0 0 0
Others/interest paid (13) (15) 0 0 0
Net increase/(decrease) in cash 16 (30) 25 30 85
Beginning cash 102 117 88 113 143
Changes due to forex impact 0 0 0 0 0
End cash 117 88 113 143 228
Source: QL, UOB Kay Hian Figure 42: Ratios
Year to 31 Mar (%) 2011 2012 2013F 2014F 2015F
Growth
Turnover 20.4 9.5 11.6 12.1 5.9
EBITDA 16.1 1.4 12.1 24.6 12.4
Pre-tax profit 18.2 7.1 14.2 22.6 12.4
Net profit 16.5 5.5 13.1 22.6 12.4
Net profit (adj.) n.a. 5.5 13.1 22.6 12.4
EPS (45.3) 5.5 13.1 22.6 12.4 Profitability
EBITDA margin 7.2 6.7 6.7 7.5 7.9
EBIT margin 9.8 9.5 9.7 10.4 10.9
Gross margin 16.2 15.5 15.3 16.2 16.7
Pre-tax margin 9.0 8.9 9.1 9.9 10.5
Net margin 7.0 6.8 6.8 7.5 7.9
ROE 20.1 17.0 17.0 18.1 17.6
ROA 9.7 8.4 8.5 9.4 9.7
ROIC 12.9 10.9 11.1 12.2 12.2
RONTA 7.2 5.7 5.6 6.4 6.6 Leverage
Interest cover (x) 7.4 6.2 7.0 8.7 9.8
Debt to total capital 38.4 40.4 37.2 33.8 30.7
Debt to equity 67.7 73.5 64.0 55.3 47.9
Net debt/(cash) to equity 51.1 61.0 50.4 40.8 28.5
Source: QL, UOB Kay Hian
QL Resources 29
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QL Resources 30
As of 2 November 2012, the analysts and their families do not hold positions in the securities recommended in this report. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc ("UOBKHUS") which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. UOB Kay Hian (Malaysia) Holdings Sdn. Bhd. (210102-T) Suite 19-02, 19th Floor, Menara Keck Seng, 203 Jalan Bukit Bintang, 55100 Kuala Lumpur, Malaysia. Tel: (603) 2147 1988, Fax: (603) 2147 1983 http://research.uobkayhian.com
