We remain positive on QL’s future prospects, premised on stronger growth coming from its Marine Product Manufacturing (MPM), Integrated Livestock Farming (ILF) and Convenience Store Chain (CVS) segments. We expect growth to be driven by higher export for surimi based products while the reopening of the economy to drive Family Mart’s sales. Furthermore, we believe that higher egg selling prices in Vietnam and Indonesia coupled with the ongoing cost subsidy for its Malaysian operations should help to mitigate the impact of rising feed cost. Additionally, we think that QL’s current valuations looks attractive, trading at forward PE of c.40x (close to -1SD of its average 5-year forward PE). All told, we maintain our Outperform rating and TP of RM6.00 on QL.

• Stronger export to drive MPM growth. We expect the MPM segment to post greater earnings, driven by strong demand from both local and export market given the supply disruptions in Vietnam, Russia and India. While the rising input costs (fuel costs and minimum wage impact) will affect margins, we think that greater economies of scale with an increase in fishing activities and improved fish landing coupled with the strengthening of USD will help to mitigate the impact. Note that export sales contributes c.60% of MPM revenue. We gather that QL has allocated RM50m (12k MT capacity) to build a new surimi-based products factory in Surabaya, with a target to commission in 4QFY24.

• Recovery in poultry prices. We believe that the strong ILF margins will be sustainable, mainly premised on the robust feed raw material trading volume and the stronger demand for poultry products. In addition, the ongoing subsidy for egg and broiler in Malaysia should help to cushion the impact of higher feed cost. Egg prices in Indonesia and Vietnam have been increasing gradually due to the tight supply and stronger demand amid reopening of economies. The group is also looking to expand its egg production regionally (Indonesia: from 900k eggs per day to 1.4m eggs per day by 2026, Vietnam: 1.5m eggs per day to 1.8m eggs per day by 2024), given the rising egg consumption as the standard of living improves.

• To focus more on clean energy business. In line with the group’s focus on ESG related matters, QL plans to divest its stake in palm oil activities to emphasize more on clean energy business. We think that outlook for Palm Oil and Clean Energy (POCE) segment remains muted due to the weak CPO prices. Nevertheless, we gather that as Boilermech expecting its manpower issue to be resolved in 2HFY23, we believe that it should help to lift margins given the strong project order book that was affected previously by manpower shortage and high material cost.

• Family Mart (FM) outlook still exciting. As business operations normalized, we understand that FM’s footfall has recovered close to pre-Covid sales at c.RM8k sales per day despite having shorter operating hours (no longer operating for 24 hours). The group currently has 310 stores and targets to add another 300 stores in the next 5 years. As for its store opening formats, QL will focus more on its new “Food Superstore” concept, which focuses more on ready-to-eat food. Meanwhile, the group plans to rollout 300 FM mini’s (vending machines) in locations with high foot traffic for the next 5 years. These expansion plans will be supported by the commissioning of its second central kitchen in June 2022.

Source: PublicInvest Research - 29 Sept 2022