• QL Resources’ FY19 core net profit grew 11% yoy to RM217m attributed to stronger performance in MPM and ILF divisions. Overall, its earnings were inline with our estimate at 101% yet fell slightly short of consensus forecast at 95%.

• Revenue for the year was +11% to RM3,613m, coming in from higher contributions of surimi products and its poultry units.

• On qoq basis, 4Q PBT declined 34% to RM61m owing to seasonal effect in MPM division and declining of Biological asset fair value in ILF division.

• We recommend Hold on the stock with unchanged SOP-derived target price of RM7.15.

Profit increased due to better product margins

QL’s FY19 saw an improvementcoming in within our expectation at 101% whilst falling slightly short of consensus at 95%. Its core net profit increased by 11% yoy to RM217m (FY18:RM195m) boosted by better sales, and accompanied by higher margins and lower operating costs. Growth at PBT level increased by +13% yoy to RM272m largely due to the rise in MPM segment by +23%, as a result of higher contributions from surimi-based products and recovery of low fish catch cycle.

Improved sales performance by ILF and MPM segments

ILF’s revenue increased to RM2,302m (+11% ytd, +18% yoy). This is mainly due to higher sales contribution from Peninsular & Indonesia poultry units. We estimate that “Family Mart” (FM) stores have also contributed significantly to the increase in ILF segment revenue with 103 stores in operations to-date. Meanwhile, MPM revenue was recorded at RM1,008m (+11 ytd), due to seasonal factor and higher contributions from surimi-based products.

Lower qoq profit performance

On qoq basis, 4Q PBT declined by 34% to RM61m. The lower PBT was contributed by MPM (-39% qoq), experiencing a seasonal effect, combined with ILF (-41%) due to decrease in fair value of its biological assets. The quarter also saw an increase in number of FM stores by 20 stores from 83 stores at the end of 3QFY19. However, its POA division offsets the poor performances attributed to better CPO milling margins (+22%).

Maintain Hold with TP of RM7.15

We maintain our Hold recommendation with unchanged SOP-derived TP of RM7.15. Overall, we estimate QL’s net profit to show a steady growth over the next 3 financial years. Key risk, in our view, is its ability to incorporate higher operation costs in managing the downstream franchise.

Source: BIMB Securities Research - 31 May 2019