QL’s 1QFY24 core PATAMI increased by 12.6% YoY to RM92.8m, due to strong fishing activities, better performance from Malaysia and Indonesia’s farming operations as well as the turnaround in Palm Oil and Clean Energy (POCE) segment. 1QFY24 results came in within our and consensus estimates, accounting for 24% our full-year forecasts. We are still positive on QL’s future prospects as we expect consumer spending on staple goods to remain resilient, which should benefit QL. Additionally, we think that QL’s store opening plans for its CVS operations will help to ramp up the utilization for its second central kitchen, thereby leading to an uptick in PBT margin. Our Outperform call on QL is maintained, with an unchanged DCF derived TP of RM6.60.

• 1QFY24 revenue grew by 5.1% YoY to RM1.6bn, driven by stronger sales from the Convenience Store Chain (CVS), which posted a jump of26.6% YoY on new store openings and stronger contribution from FM mini. Marine Product Manufacturing (MPM) sales increased by 4.4% YoY, thanks to the better fish landing and higher export volume for fishmeal. POCE sales rose by 23.9% YoY, due to higher project progress in Boilermech and better palm oil activities. However, Integrated Livestock Farming (ILF) segment saw its revenue declined by 2.9% YoY, dragged by lower trading volume for feed raw material.

• 1QFY24 PATAMI increased by 12.6% YoY to RM92.8m, due to better performance from MPM, ILF and POCE segments. Despite recording lower revenue, the ILF segment’s PBT improved by 20.6% YoY, thanks to an increase in production volume and efficiency in its Malaysia and Indonesia operations, with its Malaysia operations being further supported by the cost subsidy from the Malaysian government. POCE segment returned to the black on better project margin recovery at Boilermech coupled with improvement from palm oil activities. On the flip side, CVS segment continued to be affected by higher labour cost and low production efficiency from the new central kitchen, resulting in a -3.4 ppts decline in PBT margin to 4.5%.

• Outlook. We foresee QL to continue to post stronger earnings, on good fish landing and stable demand for surimi-based products. Additionally, we are expecting an improvement in the CVS segment’s PBT margin, underpinned by its store opening plans which should increase the utilization rate of its second central kitchen. As at end June-23, QL has 370 Family Mart stores and 77 FM Mini vending machines. Meanwhile, we think that the higher egg selling price in Vietnam and Indonesia as well as the cost subsidy from the Malaysian government should help to mitigate the lower trading volume from feed raw material trading.

Source: PublicInvest Research - 30 Aug 2023