While revenue improved by 26% YoY to RM1.4bn, QL’s 3QFY22 net profit fell by 21.7% YoY to RM59.8m. This was mainly due weaker performance from the Marine Product Manufacturing (MPM) and Integrated Livestock Farming (ILF) segments, dragged by global supply chain disruption and higher feed cost. Cumulative 9MFY22 net profit of RM147.9m was broadly in-line with our but below consensus estimates, accounting for 70% and 68% of full-year forecasts respectively. We are still positive on QL’s outlook as we are expecting an earnings recovery moving forward, driven by stronger footfall at its Family Mart operations and recovery in poultry prices supported by the Government’s subsidy programme, which should help to improve margins. Our Outperform call and TP of RM5.30 on QL is maintained.

• 3QFY22 revenue grew by 26% YoY to RM1.4bn. This was largely attributable to stronger performance of the Palm Oil and Clean Energy segment (+260% YoY), thanks to the consolidation of Boilermech coupled with the significant improvement in CPO prices. ILF sales increased by 19.1% YoY, on the back of higher feed raw material trading price, increase in egg production volume and surge in Family Mart’s sales. MPM segment sales were marginally higher by 3.8% YoY, due to the higher selling price for all products. The growth in surimibased products was partially offset by the lower volume in fishmeal and fishing activities however.

• 3QFY22 net profit at RM59.8m (-21.7% YoY, +30.2% QoQ). MPM segment’s PBT margin fell by 4.4% to 18.7%, dragged by higher input costs as a result of higher fuel cost and global supply chain disruption. Meanwhile, ILF’s PBT declined (-45% YoY) due to the erosion in farming margin due to the exceptionally high feed cost and depressed egg selling price. On the other hand, POCE earnings improved substantially following a stronger contribution from the Indonesian plantation and inclusion of Boilermech as a subsidiary.

• Outlook. While the ILF segment will continue to face margin pressure given the elevated feed cost, we think that the recovery in egg price and the Government subsidy of 5 sen per egg will help to cushion the impact on its margins. Additionally, we opine that Family Mart operations will continue to benefit from the reopening of the economy as we understand that there has been a good recovery in footfall since the relaxation of Covid-19 SOPs. To date, QL has opened 276 Family Mart stores. We expect MPM earnings to improve gradually, mainly underpinned by the sturdy demand for surimi-based products and a progressive recovery in fish landing cycle.

Source: PublicInvest Research - 25 Feb 2022