QL’s 1QFY22 net profit fell by 17% YoY to RM42.2m, as the Marine Product Manufacturing (MPM) segment was affected by the low fish landing cycle and Covid-19 related lockdown measures. Results were below expectations, accounting for 16% and 15% of our and consensus forecasts respectively. The deviation in our forecast was mainly attributable to the weaker-thanexpected performance from the MPM segment. We are adjusting our FY22- 24F earnings downwards by 3-7% to account for the near-term supply chain disruptions in MPM segment due to the lower fish catch, and the muted poultry prices given the delay in the reopening of the economy. Our Neutral call on QL is maintained with a lower DCF derived TP of RM5.70 (previously RM5.85) as we roll over our valuation base year to FY23F.

• 1QFY22 revenue increased by 26.3% YoY to RM1.2bn, underpinned by the 152% YoY growth in the Palm Oil and Clean Energy (POCE) segment thanks to higher CPO selling prices and the consolidation of Boilermech’s sales as a subsidiary. Integrated Livestock Farming (ILF) segment saw its sales grew by 33% YoY mainly due to the high feed raw material trading price. On the other hand, sales for the MPM segment declined by 11.4% YoY, dragged by the low fish landing cycle and a surge in Covid-19 cases regionally, leading to a disruption in fishing and manufacturing activities.

• 1QFY22 net profit fell by 17% YoY to RM42.2m, mainly attributable to the weaker performance from the MPM and POCE segment. MPM segment saw its PBT falling by 32.6% YoY to RM41.7m given the higher operating cost as a result of lower production volume. Despite recording higher contribution from Boilermech, the POCE segment PBT fell by 15.5% YoY due to a marginal translation loss given the stronger Indonesian Rupiah. Meanwhile, the ILF segment PBT jumped by 66.4% YoY, due to improved contribution from Family Mart.

• Outlook. While the recovery trajectory has been delayed following the spike in Covid-19 cases, we expect the economy to gradually return to normalcy in 2HFY22 onwards given the increase in vaccination rates. That being said, we are expecting the MPM segment earnings to normalize in 2HFY22 following the uplift in Covid-19 related restrictions and seasonal factors. In addition, we are also expecting egg prices to improve, in tandem with the recovery in economic activities. While Covid-19 related restrictions have slowed down Family Mart’s store opening process, QL is still looking to achieve its target of 300 stores by FY2022. Based on our latest store count, QL has opened 251 Family Mart stores to date.

Source: PublicInvest Research - 26 Aug 2021