Resilience reflects strength of business model
QL Resources Bhd is one of the more resilient counters despite the recent stock market meltdown. Year to date, the stock had shed only 9.1% as of its Dec 26 closing of RM2.28 despite a 39.6% decline in the Kuala Lumpur Composite Index (KLCI).
The stock hit a high of RM2.99 in June before the global financial crisis erupted. The resilience of QL's share price reflects the strength of its business model in the face of a downturn.
While overall consumer demand may be affected as the economy slows, the diversity in QL's operations in the food and agricultural sectors is likely to spare the group any major revenue contraction. Meanwhile, the full-fledged downstream and upstream operations within its business divisions put the group in a stronger position than its peers.
The group has divided its operations into three areas — marine products (fishmeal, surimi products and deep-sea fishing); crude palm oil (CPO) milling and plantation; and integrated livestock (poultry farming and feed meal distribution).
The marine product and integrated livestock divisions account for about 90% of the group's earnings, while CPO milling and plantations contribute the remaining 10%. Hence, the impact of low CPO prices on QL is minimal.
The group has enjoyed double-digit growth since it was listed in 2000, fuelled by organic expansion as well as acquisitions.
It posted a net profit of RM46.73 million for the six months ended Sept 30, 2008, on a turnover of RM756.11 million. Both net profit and turnover increased 29.5% and 21.6% respectively, compared to the previous corresponding period. For FY2008 ended March 31, group net profit grew 27.7% year on year to RM80.8 million, while turnover rose 16.4% to RM1.3 billion.
Besides strong earnings, the group's balance sheet remains healthy with net gearing maintained at 0.33 times. This, however, excludes letters of credit or trade financing for the feedmeal trading operations.
At its current share price, QL's market capitalisation stands at RM752.4 million. The group is now trading at an undemanding 7.76 times forward estimated earnings (8.22 times historical earnings), based on consensus earnings polled by Bloomberg.
In a recent report entitled The eating is not stopping, Aseambankers says QL remains its top pick in the small and medium capitalisation consumer sector, with a target price of RM3.90.
