After adjusting for the one-off remeasurement gain of RM79m of the previously held equity interest in Boilermech in FY21, QL’s FY22 core net profit fell by 6.5% YoY to RM217.3m, dragged by the rising commodity costs and operational disruptions due to lockdown measures. Full-year result was in-line with our and consensus estimates, accounting for 103% of our full year forecasts. We think that the worse should be over for QL and are expecting earnings to continue to recover from its low base given the reopening of the economy. However, we believe that future growth prospects have largely been priced in following the recovery in its share price. As such, we downgrade our call on QL to Neutral from Outperform, given the limited upside potential to our DCF-based TP of RM5.30. On a side note, QL had proposed a final single tier dividend of 3.5 sen.

• 4QFY22 revenue grew by 13.1% YoY to RM1.37bn. The Palm Oil and Clean Energy (POCE) sales increased by 26% YoY due to the higher project progress and delivery in Boilermech and stronger CPO prices. ILF segment saw its sales improved by 14% YoY on the back of the high feed trading prices and the government cost subsidy. CVS segment sales grew by 24% YoY, mainly driven by the increase in number of stores and the normalization in FamilyMart’s operating hours. On the flip side, Marine Product Manufacturing (MPM) sales declined by 2% YoY, due to lower sales for surimi-based products, aquaculture and fishmeal.

• 4QFY22 core net profit increased by 97.9% YoY to RM69.4m. The better set of results was mainly due to stronger contribution from POCE, ILF and CVS segments. After adjusting for one-off remeasurement gain of RM79m, POCE segment returned to the black likely attributable to the higher CPO price and contribution from Boilermech. ILF segment PBT margin improved by 1.2 ppts to 3.8%, given the recovery in egg prices and government subsidy that helped to mitigate the impact on the rise in feed costs. Meanwhile, CVS segment PBT margin rose by 4.1 ppts to 8.5% on better economies of scale and year-end inventory provision reversal. MPM segment PBT sales declined by 14% YoY due to higher operating costs and lower production volume.

• Outlook. We expect QL’s earnings growth to resume, mainly premised on the absence of operational disruptions due to Movement Control Order, recovery in poultry prices especially Vietnam as well as stronger contribution from its CVS segment. To date, QL currently has 290 FamilyMart stores and is on track to reach its target of 300 stores by mid-2022. Going forward, QL plans to open another 300 FM stores in the next 5 years plus an additional 300 vending machines (FM Minis) by FY2026. Meanwhile, we think that the impact from elevated feed cost could be mitigated by the recovery in poultry prices especially in Vietnam and Indonesia and higher selling prices for its raw material trading unit.

Source: PublicInvest Research - 31 May 2022