• QL Resources’ 1QFY19 core net profit of RM43.5.2m was inline with ours and consensus estimates of 17.6% and 18.2% respectively.

• Its 1QFY19 earnings declined 3.3% yoy, due to combination of mixed performance in all 3 divisions.

• On qoq basis, profit before tax rose 19% to RM51.2m owing to better performance by POA (+42%) and ILF (+10%) divisions.

• No adjustment was made to our earnings. However, our target price is currently under review.

Profit declined due to higher effective tax rate

QL’s 1QFY19 core profit declined 3.3% yoy to RM43.5m (1QFY18:RM45m) caused by higher effective tax rate (+20% yoy). The increase was due to reduction in tax allowance as Hutan Melintang factory expansion has finally completed. Overall, core profit made up 17.6% of our estimates and 18.2% of consensus’. We note that 1QFY is typically the weakest quarter due to seasonality factors. Overall, earnings were driven by weaker profit before tax of POA (-50.5% yoy), MPM (+0.5% yoy) with higher tax rate (+20%) despite some offset by strong performance of ILF (+31%).

Improved performance by ILF and MPM

On yoy and qoq basis, ILF’s revenue increased by 18% and 8% respectively (RM526.6m). This is mainly due to higher sales contribution from feed raw material trade. MPM sales were recorded at RM217.3 (+5% qoq, +1% yoy), due to slow recovery of post EL-Nino fish cycle in Malaysia water. The POA division fell 20% qoq, however this segment contributes only 9% of total revenue.

Better qoq performance

On qoq basis, profit before tax improved by 19% to RM51.2m. It was contributed by MPM (+42%), experiencing a seasonal effect with improved aquaculture performance, combined with ILF (+10%) due to higher margins from feed raw material trade. Its POA division however fell 45%, faced by reduction in CPO prices, poor fruit setting combined with labor shortage.

Maintain Hold pending review

No adjustment was made to our earnings forecast whereas our target price is currently under review.

Source: BIMB Securities Research - 28 Aug 2018