• QL Resources’ (QL) FY18 core net profit of RM206.2m was inline with ours and consensus estimates of 97% and 95% respectively.

• Its 4QFY18 was poor, but not unexpected, due to combination of weak MPM and POA despite some offset by low tax and mild performance of ILF.

• A final single tier dividend of 4.5 sen per share was announced, bringing total DPS declared in FY18 4.5 sen.

• We maintain recommendation with unchanged TP of RM4.70 for now, based on PER 31x (+1SD above 3 year mean) on FY19 EPS, pending review.

Low performance from MPM

QL’s FY18 core profit increase 5% to RM206.2m despite weak performance by Marine Products Manufacturing (MPM). However, positive palm oil activities (POA) combined with good performance by integrated livestock farming (ILF) and low tax rate resulted in a decrease in PBT of 2%. Overall, core profit made up 97% of our estimates and 95% of consensus’.

4QFY18 slipped by weak performance by MPM and POA

On yoy basis, 4QFY18 core profit declined 0.3% mainly due to negative performance of POA and MPM which declined by 18% respectively. This is based on low CPO prices and low fish catch due to post-EL Nino phenomenon. Meanwhile the 6% gain made by ILF from better contribution from poultry farm operations, was unable to offset the slide.

Lower qoq result

On qoq basis, 4QFY18 core profits fell 20%. MPM noted seasonally lower fish catch impacting profits, while POA experience a lower CPO price at RM2,462/tonne (4QFY17: RM3,129). Its ILF division faced a reduction in volume of raw materials traded leads to 6% decrease.

Dividend declared

A final single tier dividend of 4.5 sen was proposed, translating to 0.8% yield.

Maintain Hold pending review

No adjustment was made to our earnings forecast. We maintain our Hold recommendation with TP of RM4.70, pending a review, based on PER 31x (+1SD above 3 year mean) on FY19 EPS. We forecast CPO price to trade lower for the year and positive poultry farm contributions hold <50% in ILF’s revenue breakdown. Although we are confident in QL’s good earnings prospect, we believe this has been largely priced in.

Source: BIMB Securities Research - 25 May 2018