QL’s core PATAMI rose by 30.6% YoY to RM122.6m on better performance from all operating segments especially the Integrated Livestock Farming (ILF) segment. Cumulative 1HFY24 PATAMI of RM215.5m came in above our and consensus estimates, at 56% of full-year forecasts. The discrepancy in our numbers was mainly due to the better-than-expected performance from the ILF segment as its feed raw material trading margins was lifted by the lower unit cost. Therefore, we raise our earnings forecast by an average of 4% for FY24-26F as we lower our cost assumptions. Going forward, we remain optimistic on QL’s operations driven by favourable fish landing which should lead to better margins for its Marine Product Manufacturing (MPM) segment, coupled with the stronger layer performance in Malaysia given the continuation of cost subsidy. As such, we maintain our Outperform call on QL, with a higher DCF derived TP of RM6.75 following our earnings adjustment.

• 2QFY24 revenue rose 3.2% YoY to RM1.7bn. The strong performance was attributed to the sizeable increase in sales from the Convenience Store Chain (CVS) segment (+23% YoY), driven by new store openings and FM mini set-ups. The Palm Oil and Clean Energy (POCE) segment saw its sales increased by 14.5% YoY, on higher project progress in BM GreenTech, while being supported by greater production and processing of FFB tonnage. The MPM segment experienced higher sales, +3% YoY, owing to better performance of fishing activities and increased demand for surimi-based products. On the other hand, ILF segment sales fell by 3.6% YoY, as a result of lower trading volume and ASP for feed raw material.

• 2QFY24 PATAMI grew 30.6% YoY to RM122.6, mainly attributable to stronger performances from the ILF and POCE segments. Despite recording lower revenue, ILF segment saw its PBT jumping 92.8% YoY, primarily due to lower unit cost driven by continued cost subsidy provided by the Malaysian government. POCE segment’s PBT was significantly higher (+338% YoY), as it recorded improvements in palm oil activities, attributable to increased milling efficiency and higher plantation yields. CVS segment PBT rose a smaller quantum (+15.7% YoY), as margins was affected by higher labour and energy cost. As a result, CVS PBT margin fell by 0.4 ppt to 6.6%.

• Outlook. We are still positive on QL’s future outlook as we believe that consumer spending on staple goods will remain resilient despite the weak global economy outlook. We foresee an improvement in MPM segment margins on better production efficiency due to favourable fish landing and lower surimi input cost. While broiler operations should be slightly affected by the recent removal of subsidy, we think that the stronger layer operations performance due to the continued cost subsidy and lower feed cost will help to offset the weaker broiler operations. As of 2QFY24, QL operates a total of 379 Family mart stores and 84 FM Mini vending machines, with plans to open more outlets in the Northern region and East Coast. We believe that the store opening plans will help to ramp up the utilization for its second central kitchen which can cater for additional 500 stores.

Source: PublicInvest Research - 30 Nov 2023