Wednesday, May 23, 2012

QL's top-line & bottom-line dipped a bit

Results Update

QL has just announced its results for QE31/3/2012. Its net profit dropped 7.4% q-o-q but rose 1.0% y-o-y to RM31.9 million while its revenue dropped marginally 0.1% q-o-q or 0.9% y-o-y to RM498 million. The drop in revenue on y-o-y basis was due to a sharp decline in the Palm Oil Activities ('POA') segment which exceeded the increase in revenue in the Marine Product Manufacturing ('MPM') & Integrated Livestock Farming ('ILF') segment (see Table 2 below). As the profit margin for the MPM & ILF segment are 4-5 times higher than that of POA, the company's net profit improved.

Table: QL's last 8 quarterly results

Table 2: QL's 1Q2012, 1Q2011 & 1Q2010 compared

Chart 1: QL's last 16 quarterly results


QL (closed at RM3.16 yesterday) is now trading at a PE of 20 times (based on last 4 quarters' EPS of 15.88). At that PE multiple, QL is considered overvalued. The market seems to factor in a significant jump in earning, which did not pan out.

Technical outlook

QL hit its all-time high of RM3.60 in early 2011. An attempt to revisit this high in January 2012 managed to only achieve a high of RM3.40. QL is likely to consolidate at the RM3.00 mark for a while. A Test of the Low of RM2.50 cannot be ruled out if the current poor market sentiment were to take a turn for the worse.

Chart 2: QL's monthly chart as at May 22, 2012 (Source: Tradesignum)


Based on good financial performance & strong management, QL will be a good stock for long-term investment. However, the stock is priced now to yield an abysmal return. In such circumstances, it is best to cash in our chip & invest in something more promising.


kerry lee said...

Invest into something else like? What about Gas Malaysia as long term buy?

Alex Lu said...

Hi Kerry Lee,

I have just studied the prospectus of Gas Malaysia. I would put the EPS at a range of 8-10 sen for FY2012. The uncertainty which led to the range is:

1) When would the new selling price, cost price & margin kick in? Margin is supposed to drop to 11.5% in 1/12/2011 but it has not been implemented yet!
2) What will be the growth in sales volume for FY2012?

If I chose to be generous and assume the new pricing will not kick in for FY2012 and factor in a volume growth of 10%, the net profit could be RM126 million and EPS about 10 sen. If I chose to be less generous and assume the new pricing will kick in on 1/7/2012 and no sales volume increase (unlikely!), then the net profit could be RM100 million and EPS about 8 sen.

If we used Petgas's PE multiple of 24 times but factoring in a discount of 10%, then the value of Gas Malaysia would be in the range of RM1.72 and RM2.16.