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PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 14 Jul 2020, 10:11 AM

 

QL Resources Berhad- Remain Resilient

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We came away from our recent conference call with QL feeling confident that the group would remain resilient amid global economy uncertainty over the Covid-19 pandemic. While we tweak our earnings forecast for FY21- 22F by an average of 4% to account for the subdued growth in Family Mart’s expansion plans and lower sales from the export market, our estimates for FY20 remains unchanged. Nevertheless, we reiterate our Neutral call on QL as we roll forward our DCF valuation to FY21F, thus leading to an increase in our TP to RM8.85.

  • Marine Product Manufacturing (MPM) production remains largely unaffected as we understand that the segment gradually increased its workforce from 50% to 100% in order to ensure sufficient food supply locally. However, we opine that the lockdown on other countries will have an impact on QL’s export earnings although QL has since diverted some of its frozen prawn exports from China to Australia and have also started to increase its supply locally. Moving forward, we expect this segment to remain robust on the back stronger USD and resilient export demand supported by an increase in production of frozen and chilled surimi-based products. Meanwhile, QL recently acquired 2 pieces of land in Hutan Melintang for RM40m earmarked for expansion over the next 2 years with an estimated capex of RM100m.
  • Integrated Livestock Farming (ILF) is expected to benefit from lower raw material costs, increase in egg demand and favourable egg prices. Corn and soybean meal prices are expected to continue its downtrend, which should lead to an uptick in margins for 1HFY21. We understand that there has been a surge in egg demand especially during MCO in Malaysia and its regional operations ie Indonesia and Vietnam.
  • Palm Oil Activities (POA) outlook for FY21 remains cloudy in tandem with the retracement of CPO prices recently, currently trading at an average of RM2000/mt. Nonetheless, 4QFY20 and 1QFY21 are likely to benefit from the previous rally in CPO prices as we understand that QL has managed to lock-in forward contracts at a favourable CPO price of RM3000/mt.
  • Convenience Store (CVS). Based on our latest store count, QL has opened c.188 stores to date and has surpassed its target of opening 170 stores by FY20. However, we believe that the QL might not be able to achieve its target of opening 80 new Family Mart stores this year due to the Movement Control Order (MCO) restrictions. Therefore, we are lowering our assumptions on Family Mart’s contribution by c.10% as we factor in lesser store counts. In addition, we believe that sales were impacted during the MCO with shorter operating hours, temporary closure of several stores in shopping malls and airports as well as the lower foot traffic.
  • 4QFY20 earnings preview. QL’s 4QFY20 results are expected to be released on 29th June 2020. Our earnings estimates for FY20 remains unchanged as we believe consumers’ panic buying will likely to offset the impact of the MCO on Family Mart’s sales. In addition, higher plantation earnings due to stronger CPO prices should be reflected in 4QFY20.

Source: PublicInvest Research - 29 May 2020

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