PP 7767/09/2010(025354)

25 May 2010

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

MARKET DATELINE
R e su l ts N o t e 25 May 2010

Share Price : RM3.72

QL Resources Fair Value
Recom
:
:
RM4.60
Outperform
Still A Solid Food Package (Maintained)

Table 1 : Investment Statistics (QL; Code: 7084) Bloomberg: QLG MK

Net
FYE Turnover Profit EPS Chg PER C. EPS^ P/NTA Net gearing ROE Gr. Div.
Yld.
Mar (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%)
(%)
2010a 1,476.7 106.4 26.9 19.2 13.8 - 3.1 0.2 24.2 2.7
2011f 1,679.2 122.9 31.1 15.4 12.0 30.0 2.6 0.4 23.3 2.8
2012f 1,870.2 144.3 36.5 17.4 10.2 35.0 2.1 0.1 22.7 3.3
2013f 2,007.2 162.4 41.1 12.6 9.0 - 1.8 0.1 21.2 3.8
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC ^ Consensus Based On IBES Estimates

♦ In line. QL’s FY03/10 net profit of RM106.4m was in line with our and RHBRI Vs. Consensus
Above
consensus expectations, accounting for 99.7% and 101.3% of our and
In Line
consensus full year estimates respectively. During the quarter, QL declared Below
final net dividend of 7.5 sen, which was also in line with our expectations.
Issued Capital (m shares) 395.2

♦ Yoy, net profit grew by 19.2% arising from: 1) higher revenue from all
Market Cap(RMm) 1,470.0
Daily Trading Vol (m shs) 0.3
divisions (MPM: +10% yoy; ILF: +5% yoy; POA: +2% yoy); 2) better
52wk Price Range (RM) 2.18-3.94
margins from ILF division (+1.9%-pt yoy) as synergy from previous ILF
Major Shareholders: (%)
acquisitions started to kick in; and 3) better margins from MPM division CBG Holdings Sdn Bhd 47.0
(+1.8%-pt yoy) arising from better average selling prices and economies Farsathy Holdings 13.4
of scale; slightly offset by lower margins from POA division (-1.1%-pt yoy)
due to lower milling margins, lower FFB yields in 1H10 from its own estates FYE Mar FY10 FY11 FY12
EPS chg (%) -1.0 -1.2 -
as well as higher interest cost incurred in its Indonesian plantation
Var to Cons (%) +3.6 +3.6 -
development.
PE Band Chart
♦ Still targeting 10-15% net profit growth for FY11. QL targets a 10-
15% net profit growth yoy on the back of higher sales volume from all
PER = 12x
divisions, margin improvement from continuous operating efficiency and PER = 9x
PER = 6x
lower cost of feedmeal, which is in line with our forecasts. In FY11, QL’s
palm pellet project will be undergoing commercialisation and there could be
potential earnings contribution from this project during the year. We have
yet to input any potential earnings from this project into our forecasts.

♦ Risks. The risks include: 1) significant drop in demand; 2) significant Relative Performance To FBM KLCI
increase in raw material prices; 3) significant change in CPO price trend;
4) foreign exchange risk; and 5) aggressive growth that may strain its
QL Resources
balance sheet.

♦ Forecasts. We tweaked down our earnings forecasts by 1.0-1.2% for

FY11-12 after updating our FY10 numbers. We have also introduced our FBM KLCI
FY13 numbers.

♦ Investment case. In our view, QL’s proven track record, together with its
staple food-based business, offers investors resilient earnings that would
be able to withstand economic downturns and recessions. We have rolled Hoe Lee Leng
forward our valuation target to CY11. As such, our fair value has now been (603) 92802239
increased to RM4.60 (from RM3.93) based on unchanged PER target of 13x [email protected]
(10% discount to the consumer sector target PER of 14.5x).

Please read important disclosures at the end of this report.

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Table 2: Quarterly Earnings

FY Mar 4Q09 3Q10 4Q10 Qoq Yoy FY09 FY10 Yoy Comments
(%) (%) (%)
(RM m) Chg Chg Chg
Turnover 319.2 370.1 413.0 11.6 29.4 1,397.9 1,476.7 5.6 Higher yoy largely from higher
contribution from MPM division
(+10% yoy) due to better sales
and average selling prices. POA
and ILF divisions increased by
2% and 5% yoy respectively.

EBIT 38.7 53.5 49.9 (6.8) 28.9 159.1 189.7 19.2 Refer to EBIT margin.
Depr & Amortization (10.8) (10.1) (11.9) 16.9 10.2 (34.5) (40.8) 18.5 Higher due to 15.5% increase in
PPE.
Interest Income/ (4.0) (3.5) (3.2) (7.3) (20.2) (15.2) (13.1) (13.7) Lower yoy due to lower
(Expense) borrowing cost.
Associate 0.1 0.1 0.1 6.9 (0.9) 0.4 0.5 11.0
Pretax Profit 24.0 40.0 34.9 (12.8) 45.3 109.9 136.2 23.9 Filtered down from EBIT and
lower borrowing cost.
Taxation (4.1) (6.3) (7.2) 13.8 74.6 (13.2) (21.5) 63.0
Minority Interest (1.0) (2.3) (1.3) (45.2) 19.7 (7.3) (8.2) 11.5
Net Profit 18.8 31.4 26.4 (15.8) 40.3 89.3 106.4 19.2 Filtered down from PBT, higher
tax expense and higher minority
interest.

EBIT Margin (%) 12.1 14.5 12.1 11.4 12.8 Margin improvement as synergy
from previous ILF acquisitions
started to kick in; better pricing
and economies of scale from
MPM; slightly offset by lower
margin from POA division due to
lower milling margins, lower
contribution from own estates in
1H10 and higher interest cost
incurred in Indonesian plantation
development.

Pretax Margin (%) 7.5 10.8 8.5 7.9 9.2

Net Margin (%) 5.9 8.5 6.4 6.4 7.2
Effective tax rate (%) 17.2 15.8 20.7 12.0 15.8 Lower than statutory tax rate
due to various tax incentives
enjoyed.

Source: Company, RHBRI

Table 2: Earnings Forecasts Table 3: Forecasts Assumptions

FYE Mar (RMm) FY10 FY11f FY12f FY13f FYE Mar FY11F FY12F FY13F

Turnover 1,476.7 1,679.2 1,870.2 2,007.2 Revenue growth (%)

Turnover growth (%) 5.6 13.7 11.4 7.3 Marine 14.9 20.0 8.3
Palm oil 8.4 8.4 5.0
Cost of Sales (1,234.0) (1,394.7) (1,544.7) (1,648.0) ILF 9.0 9.0 9.0
Gross Profit 242.6 284.5 325.5 359.2
EBIT margin (%)
EBITDA 189.7 223.5 261.6 291.7 Marine 15.8 15.8 15.8
EBITDA margin (%) 12.8 13.3 14.0 14.5 Palm oil 11.5 14.0 16.2
ILF 8.0 8.0 8.0
Depr&Amor 40.8 46.2 52.8 58.8 Source: RHBRI
Net Interest (13.1) (21.4) (25.6) (26.5)

Pretax Profit 136.2 156.4 183.7 206.8

Tax (21.5) (23.5) (27.6) (31.0)
Minorities (8.2) (10.1) (11.9) (13.4)
Net Profit 106.4 122.9 144.3 162.4
Source: Company data, RHBRI estimates*

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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