• Overview. QL’s 3Q20 PATAMI of RM76m came in higher yoy as revenue improved 13% to RM1.1bn on higher sales contributions from surimi-based products and from Regional and Sabah poultry operation in ILF division as well as Family-Mart business. On quarterly basis, profit grew 9% which resulted from better margins from all divisions assisted by higher share of profit from associate of RM2.7m (+12% qoq).

• Key highlights. 9M20 saw Group’s earnings and revenue grew by double digit, backed by higher contribution from both MPM and ILF division including “Family Mart” business, as well as 3% increase in share of profit of associate amounting to RM8.3m (9M19: RM8.0m).

• Against estimates: inline. 9M20 profit was in line with our estimates. Higher revenue from MPM and ILF, and improved margin from MPM division lifted profit higher. Group’s PBT margin was maintained at 8% yoy with MPM margins expanded to 17% from 16% in 9M19.

• Outlook. We believe our earnings forecast is achievable judging from its earnings track-record. QL’s earnings trajectory was uninterrupted despite the uncertainties hitting the market in the past i.e. SARS, H1N1 and the subprime crisis. In addition, it’s “Family-Mart” stores have also contributed significantly to the increase in ILF segment revenue with a target of 170 stores by Mar 2020 and 300 stores by FY22F.

• Our call. Maintain HOLD with unchanged SOP-derived TP of RM8.10. We believe this is a fair valuation in view of its sustained earnings growth and its dominant position as the largest local halal food producer that caters to basic consumer food market with inelastic demand.

Source: BIMB Securities Research - 27 Feb 2020