QL’s resilient business model

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OSK Research has maintained its buy call on QL Resources Bhd at RM2.37 with a target price of RM3.32 given its fairly resilient business model and ability to grow during times of crisis.

QL is mainly involved in marine processing manufacturing, livestock farming and palm oil activities.

A recent visit to one of QL’s surimi (minced, processed fish) plants in Kota Kinabalu, Sabah, reaffirmed its view that the company’s strengths lie in its prudent management and the surimi business.

“With further expansion in surimi processing and a fresh investment in a new cold room in Johor, we think there is potential growth in the marine processing manufacturing (MPM) business over the next two years when the expansion kicks in,” it said.

OSK Research said QL had 13 trawler licences and 10 licences for purse seiners in East Malaysia, adding that the company’s deep fishing activities ensured a steady supply of fish and reduce its dependence on external suppliers.

It noted that QL was currently expanding its surimi processing capacity by installing new lines for frozen surimi-based products at its plant in Hutan Melintang, Perak.

“This would double the existing plant’s current capacity of an average 10,000 tonnes of surimi per year. The new installation will be completed in the middle of next year,” it said.

The company had also invested in a new cold room in Endau, Johor, which would be in operation in 2HFY09.

“Typically, during the monsoon season, surimi production is deemed to be slow as less fish is available during this time and certain fishing operators would choose to dock their trawlers for repairs rather than risk incurring high expenses looking for scarce fish.

“Hence, these cold rooms will store unprocessed fish for the low season, which will help facilitate the production of surimi,” it said.

QL will also open its first overseas food processing plant in Surabaya, Indonesia, which will boost production by at least 25%, said OSK, adding that the construction of the surimi plant will cost approximately RM25 million and is expected to start early next year for possible completion by the first quarter of 2010.

The research house maintained its earnings forecast for the company, and said the unchanged target price was based on the three-year average of 12.5 times price-earnings ratio (PER) and 2.4 times price-to-book value (P/BV). This article appeared in The Edge Financial Daily, March 17, 2009.