Wednesday, August 26, 2009

Why I Like QL Resources



This is a company not many has heard of. But hey, it just went past RM1.1bn in market cap. Maybe cause its based in Klang??? It has one of the most sought after ROE: 22.4% (2008); 21.4% (2009) and is projected stay between 18%-19% for the next 2 years. Manageable gearing at 0.7x which is slated to come down to 0.6x next year. Its not in the FBM 30 or the FBM 70, but I would be very surprised if it does not make its way into FBM 70 soon.

QL is principally engaged in investment holding and provision of management services, whilst the principal activities of the subsidiaries are investment holding, layer farming, processing, commercial production and distribution of animal feed raw materials and food grain, deep sea fishing and property holding. QL is involved in the activities, such as manufacturing, integrated livestock, oil palm related and distribution. The Group history can be traced back about 20 years ago.

It started as a small scale business integrated livestock activities and towards the tail end if 1993, the company began to corporatize and streamline various family business units.
From 1994 onwards, it focused on building an agro and broad-based business model consist of integrated livestock farming, marine product manufacturing and oil palm milling activities, targeting for listing. The Group was listed on 30th March 2000. During the years 2000 to 2007; it grew all three core activities organically as well as through acquisitions. Major emphasis was placed on marine-based activities as it had competitive edge over other players. During this time, it further refined it's strategy by setting up the platform for long term growth by investing in CPO milling and oil palm plantation development in Indonesia.

The company's main business focus is the manufacture and distribution of fishmeal products. QL is also the largest fishmeal manufacturers in Malaysia and supplied approximately 25% to the market share. Beside this, the company is also the leading producer of surimi, which is fish meat processed into paste form and surime-based products. Meanwhile, its integrated livestock activities consist of distribution of feed meal raw materials and animal health and feed supplements.
In addition, QL is also involved in layer farming and producing of poultry eggs. QL's operations are base in Endau, Johor and Hutan Melintang, Perak. The raw materials, mainly fish are sourced locally especially from Hilir Perak and Kuantan. QL's annual production of surimi and surimi-based products are around 7,400m/t. Meanwhile, its total egg production is about 1.5 million eggs/day. QL has two CPO mills servicing small estates in the vicinity. The mills are located near Tawau and Kunak, Sabah. QL has 20,000 hectares of oil palm development in Eastern Kalimantan, Indonesia and some mature acreage in Sabah.
The main shareholders of the Group are CBG Holdings Sdn Bhd (47.36%) and Farsathy Holding Sdn Bhd (13.48%) and Lembaga Tabung Haji (4.86%). Paid up 329.7m shares with a market cap of RM1.1bn. Pretty tightly held with just a free float of 25%. 1-for-5 bonus issue of up to 66m new shares declared. The bonus issue will raise share capital from 330m shares of RM0.50 par value to 396m.
Share price catalysts:
a) resilient demand for QL’s food and commodity-based products
b) regional expansion plans into Surabaya, Indonesia for its surimi plant and Tay Ninh, Vietnam for its integrated livestock farming project
c) a local boy made good, professional management with a dedicated focus on the important financial ratios, very solid and sustainable ROA and ROE coupled with shrewd debt management and an eye not to over-extend - expect PNB and/or EPF to start accumulating a substantial stake soon


QL is not an exceptional story, just a properly managed company with solid understanding of their products. It basically religiously maintains its net profit margin at 6%-7%; has an enviable debtors/creditor turn of under 30 days (I treat you well, you treat me well); and is projected to have a net profit growth rate of 11% this year, 13.5% in 2010 and 11% in 2011.
I would buy and hold for the bonus and then hold on some more. This company is expanding well and I expect their attention to detail to propel QL onto the next level, RM1.5bn here we come.


p/s photos: Haruka Ayase

2 comments:

Melvin Lim said...

this is a great tortoise, wish I had known it earlier

George said...

Good Analysis. Got here because it was acquiring 40% of BoilerMech stocks. Now i know why. TQ and hats of to you.