• Overview. QL’s 1Q21 PBT increased 29% yoy to RM80.4m mainly due to higher sales volume and favourable forex from export for MPM segment, and improved CPO price and forex translation gain on strengthening of Indonesia Rupiah in POA segment. On quarterly basis, higher profit (+28% qoq) was due to higher contribution from MPM and POA segments, assisted by lower operating costs and finance costs.

• Key highlights. Lower earnings from ILF segments was due to lower raw material trading volume and margin erosion on depressed farm produce price in Peninsular and Indonesia market, aided by small contribution from ‘Family-Mart” which was adversely affected during the MCO period.

• Against estimates: inline. 1Q21 profit was broadly in-line with our estimates, having reached 24% of our PBT’s full year forecast. Higher revenue from MPM, and improved margin from POA division lifted profit higher. Group’s PBT margin increased 8% from 6% in 1Q20 with MPM and POA margins expanded to 20%/24% from 17%/2% respectively in 1Q20.

• Outlook. We believe QL would continue to attract high valuation due to its consumer-driven business which is regarded as recession-proof with stable demand for its ILF products, better margins from marine segments and expansion of “FamilyMart” business.

• Our call. We maintain our FY21/21 earnings forecast of RM266m/RM293m respectively. Earnings growth drivers include the continued increase in demand from local market for both MPM and ILF segments, and contribution from “Family-Mart” convenience stores as Government has now adopted more relaxed stance on RMCO with opening-up of HEROCA business. Contribution from its POA segment is expected to gradually trickle in over the next couple of months given improvement in palm product prices and production anticipated. Maintain HOLD with SOP-derived TP of RM9.00 – as we believe fundamentals have been well reflected.

Source: BIMB Securities Research - 27 Aug 2020