QL recorded a net profit growth of 0.3% YoY to RM76.3m for 3QFY21, as the growth in the Marine Product Manufacturing (MPM) segment was partially offset by the decline in the Integrated Livestock (ILF) and Palm Oil Activities (POA) segment. Cumulative 9MFY21 earnings of RM197.3m were in-line with expectations, accounting for 75% and 74% of our and consensus’ full-year estimates respectively. While we are still positive on QL’s future prospects given the resilient business model, its valuation remains unattractive. We reiterate our Neutral call on QL, with an unchanged DCF-derived TP of RM5.90

• Marine Product Manufacturing (MPM). 3QFY21 revenue grew by 10.3% YoY to RM318.6m, mainly attributable to the increase in sales volume and better price achieved for fishmeal, surimi based products and aquaculture business. Improvement in production efficiency has also helped to lift earnings as PBT for the MPM segment jumped by 37.3% YoY.

• Integrated Livestock Farming (ILF). Revenue fell by 1.3% YoY to RM740.4m, given the weaker broiler demand in East Malaysia and Indonesia as well as the lower sales from Family Mart operations caused by the re-imposition of CMCO in Oct. In addition to the lower contribution from Family Mart operations and weaker broiler integration, the unfavourable egg prices in Peninsular has affected the margins for ILF segment, which saw its PBT decline by 14.7% YoY.

• Palm Oil Activities (POA). Sales in the POA segment decreased by 23.6% YoY, dragged by the lower FFB production and tonnage processed as both crop and OER were affected by the unfavourable weather conditions. Earnings for the segment were also affected by the higher operating cost and an unexpected windfall tax in Indonesia.

• Outlook. Moving forward, we continue to expect the MPM segment to be the main growth driver for QL on the back of the robust demand for frozen seafood, surimi and surimi based products. As egg prices are expected to recover following a cut in production due to the lower egg prices previously, we opine that it will potentially lead to an uptick in profit margins for the ILF segment. Meanwhile, based on our latest store count, QL has opened c.242 Family Mart stores to date, and is on track to achieve its target of opening 300 stores by FY22.

Source: PublicInvest Research - 26 Feb 2021