QL Resources Bhd
(Sept 14, RM4.16)
Maintain market perform call with a target price of RM4.16: QL announced that it had disposed of its entire 38.6% stake or 19.9 million shares in Lay Hong Bhd (LHB) last Friday via a direct business transaction at the price of RM3.05 per share or a total value of RM60.7 million. 

The disposal gain derived amounted to RM18.9 million, translating into an investment gain of 45.2% over a period of more than five years. 

Recall that QL first emerged as a substantial shareholder of LHB back in Aug 2010 when it acquired a 23.3% stake at the price of RM1.05 per share. 

For indication purpose, the disposal price of RM3.05 per share represents a discount of 15.3% to the five-day volume weighted average price of RM3.60 per share, at a 21.8% discount to the last closing price of RM3.90 per share and a 12.9% discount to the general offer price of RM3.50 per share (back in September 2014). 

The gain on disposal to be booked in would be RM377,000 as the remaining gains (RM10.2 million) have been recognised earlier in the financial year ended March 31, 2012 (FY12) and FY15 (RM8.3 million). 

However, we understand that QL will remain as a business partner to LHB, which involves a sum of RM50 million. 

Earnings growth is expected to be healthy at 7.8% and 11.5% over the next two years, underpinned by the defensive nature of its products, which are in the consumer staple food market that is less vulnerable to the weak consumer sentiment. — Kenanga Research, Sept 14

This article first appeared in digitaledge Daily, on September 15, 2015.