• QL’s 9MFY18 earnings of RM159.9m were in-line with our and consensus expectation making up 75.4% and 74% respectively.

• 9MFY18 earning increased 7.5% due to combination of higher earnings from Palm Oil Activities (POA) and Integrated Livestock Farming (ILF) segments as well as lower effective tax rate.

• On qoq basis, earnings improved due to seasonal factor on Marine Product Manufacturing (MPM) segment and higher contribution from FFB processed by Indonesian plantation unit in POA segment.

• Maintain Hold with new TP of RM4.70 based on higher PER 31x (+1SD above 3-year mean) on FY19 EPS.

Higher earnings due to POA and ILF segments as well as lower tax rate

QL’s 9MFY18 net earnings increased by 7.5% yoy to RM159.9m helped by a lower effective tax rate of only 15% (vs 9M17: 20.4%) due to reinvestment tax allowance for capex at Hutan Melintang factory. PBT level remain flattish with growth of 0.3% yoy to RM199.4m largely due to the decline in MPM segment by -14.9%, as a result of lower contribution from surimi and fishmeal operations attributed to post El Nino low fish cycle in Malaysian waters especially in Kota Kinabalu unit. However, this was mitigated by i) increase in POA segment (+30% yoy) on higher FFB production as well as FFB processed especially in Indonesia, and ii) improved ILF segment (+22% yoy) due to higher sales from Indonesia and East Malaysia poultry farms units.

Improved qoq performance due to seasonal effect

On qoq basis, both revenue and PBT improved by 10% and 9% respectively. The improvement resulted from higher PBT by both MPM (+24%) and POA (+184%) segment. MPM segment improved due to seasonal effect, while POA segment recorded strong performance as a result of higher FFB processed by Indonesia plantation unit.

Long term outlook remains positive

We are optimistic on QL’s long term outlook. The MPM segment is expected to improve with PBT margin expected to increase at c.17% in FY19 (vs FY18 c.15%) driven by better fish catch due to increase in its marine deep-sea fishing fleet and structural earnings growth from capacity expansion (40k mt) at its new high level automation plant in Hutan Melintang. The new plant is expected to be completed in 4QFY18. Furthermore, the group Family Mart business is gaining traction with already 30 stores opened and meeting target set for FY18. We see this as a positive development with the initial target for 300 stores to be opened by FY2021 could be achieved sooner than expected with breakeven attained in less than the 5 years originally targeted.

Source: BIMB Securities Research - 27 Feb 2018