MARKET DEVELOPMENT
CIMB Picks QL, Rates It Outperform
CIMB Picks QL, Rates It Outperform
09/07/2013 (The Star) - CIMB has taken a shine to QL, a leading integrated resource-based company involved in fish products, poultry and palm oil, which it said was trading at an undeservedly big discount to other consumer stocks despite stronger growth prospects and minimal earnings risks.
“We expect the stock to be re-rated given its substantial discount to the better-known consumer names and a refocus from dividend yields to growth as investor sentiment picks up after the General Elections. We initiate coverage with an Outperform call and a target price of RM4.55, based on a target CY14 P/E of 20.5x, after applying a 10% discount to the average consumer sector P/E of 23x CY14.
It explained the discount was in view of 1) QL is not a direct consumer F&B play, 2) its lower dividend yields, and 3) its smaller market capitalisation.
“We are projecting an FY14-16 EPS compound annual growth rate (CAGR) of 16% for QL on the back of a revenue CAGR of 6%. Revenue growth will be fed by capacity expansion for its marine product manufacturing (MPM) and integrated livestock farming (ILF) divisions, while EPS growth will be driven by margin expansion from softer raw material costs, increased economies of scale as it ramps up production, and higher average selling prices,” it said.
CIMB also pointed out that QL had more room for growth through its expansion into egg production in Indonesia and Vietnam, a source of growth as annual per capita consumption of eggs is only 70 in Indonesia and 50 in Vietnam – which is low relative to Malaysia’s 300. In terms of meat consumption, Indonesia also lags behind Malaysia, with a per capita poultry consumption of 4kg per year, a fraction of Malaysia's 32kg.
According to CIMB, large-cap companies such as Nestle and F&N are trading at 27-28 times forward earnings while brewers, Guinness and Carlsberg, are trading at 22-23 times.
“While we do concede that these companies are more direct consumer F&B plays than QL and offer fatter dividend yields of 4-5%, QL's earnings growth is more attractive at a CAGR of 16% and earnings downside risk is minimal. We think that it deserves to trade at 19-20 times price earnings ratio,” it concluded.
“We expect the stock to be re-rated given its substantial discount to the better-known consumer names and a refocus from dividend yields to growth as investor sentiment picks up after the General Elections. We initiate coverage with an Outperform call and a target price of RM4.55, based on a target CY14 P/E of 20.5x, after applying a 10% discount to the average consumer sector P/E of 23x CY14.
It explained the discount was in view of 1) QL is not a direct consumer F&B play, 2) its lower dividend yields, and 3) its smaller market capitalisation.
“We are projecting an FY14-16 EPS compound annual growth rate (CAGR) of 16% for QL on the back of a revenue CAGR of 6%. Revenue growth will be fed by capacity expansion for its marine product manufacturing (MPM) and integrated livestock farming (ILF) divisions, while EPS growth will be driven by margin expansion from softer raw material costs, increased economies of scale as it ramps up production, and higher average selling prices,” it said.
CIMB also pointed out that QL had more room for growth through its expansion into egg production in Indonesia and Vietnam, a source of growth as annual per capita consumption of eggs is only 70 in Indonesia and 50 in Vietnam – which is low relative to Malaysia’s 300. In terms of meat consumption, Indonesia also lags behind Malaysia, with a per capita poultry consumption of 4kg per year, a fraction of Malaysia's 32kg.
According to CIMB, large-cap companies such as Nestle and F&N are trading at 27-28 times forward earnings while brewers, Guinness and Carlsberg, are trading at 22-23 times.
“While we do concede that these companies are more direct consumer F&B plays than QL and offer fatter dividend yields of 4-5%, QL's earnings growth is more attractive at a CAGR of 16% and earnings downside risk is minimal. We think that it deserves to trade at 19-20 times price earnings ratio,” it concluded.