• QL Resources’ (QL) ended FY17 with a weak set of results as 4QFY17 earnings fell 0.9% yoy while FY17 earnings contracted 3% falling short of our full year forecast at 91%.

• 4QFY17 performed poorly due to combination of weaker MPM and higher effective tax rate although these were partially offset by strong POA and ILF performances.

• A final single tier dividend of 4.25 sen per share was announced, bringing total DPS declared in FY17 7.25sen.

• Maintain Hold with new TP of RM4.65 after reducing earnings for FY18/19F by 9%/4% respectively. We expect FY18 earnings to improve driven mainly by POA and ILF divisions.

Better performance from POA and ILF

QL’s FY17 core earnings fell 3% to RM186.4m on weak performance by MPM and higher effective tax rate. The impact was partially offset by strong performances of Integrated Livestock Farming (ILF) and the Palm Oil Activities (POA) division resulting in group PBT growing by 0.6% (after adjusting for exceptional items). Overall, core earnings made up only 91% of our estimates and 92% of consensus’.

4QFY17 helped by strong performance from POA and ILF

On yoy basis, 4QFY17 core earnings declined 1% mainly due to the weak performance of MPM and higher effective tax rate. These more than offset strong performance at POA and ILF. POA benefited from higher FFB production at its Indonesian and Sabah units while it also realised higher CPO prices at RM3,129/tonne (4QFY16: RM2,231). Meanwhile, the ILF division saw higher earnings as its Vietnam poultry unit and Indonesian feedmill unit performed better.

Lower qoq result

On qoq basis, 4QFY17 core earnings fell 30.9% due to the MPM and ILF division. MPM noted seasonally lower fish catch impacting earnings while ILF performed weaker due possibly to higher feedmill costs as Ringgit weakens. Nevertheless, these were partially offset by strong growth in POA amidst higher CPO prices (3QFY17: RM2,867). We adjusted ILF earnings to account for gains due to investment properties disposal of RM9.5m.

Dividend declared

A final single tier dividend of 4.25sen was proposed, bringing total dividend declared in FY17 to 7.25sen translating to 1.6% yield.

Maintain Hold with TP of RM4.65

We pare down our earnings forecast for FY18F and FY19F by 9% and 4% respectively, factoring in lower growth from MPM division in FY18 due to capacity constraint. Maintain HOLD with an new TP of RM4.65 based on PE 25.4x (1+SD above QL’s 3-years average PER of 22.7x) applied to average EPS FY18-FY19 of 18.4sen. The elevated CPO prices and better production and performance in ILF division support a decent outlook.

Source: BIMB Securities Research - 30 May 2017