• Overview. QL’s 2Q21 PBT increased 15% yoy to RM97.3m mainly due to higher sales volume and improved margin in MPM segment on account of higher production volume and cost efficiency for surimi and surimi-based products, as well as better fishmeal and aquaculture margin. This was also aided by higher share of profit from associates amounting to RM3.5m (+42% yoy) and lower finance costs of RM14.5m (-16% yoy). On qoq basis, higher profit (+21% qoq) was due to higher profit contribution from both MPM and ILF segments, aided by higher share of profit from associates.
• Key highlights. Improvement in ILF segment during the quarter was due to higher sales (+13% qoq) from both its farming operations and raw material trading as well as recovery in “Family-Mart” operations with the lifting of MCO by government. Hence, margins improved to 4% against 1% in 1Q21.
• Against estimates: inline. 1H21 profit was broadly in-line with our estimates, having reached 53% of our PBT’s full year forecast. Group’s PBT margin increased 9% from 7% in 1H20 with MPM and POA margins expanded to 21%/11% from 17%/2% respectively in 1H20.
• Outlook. We expect a seasonally stronger 2H, supported by festivities and better contribution from all segments, with MPM segment to remain its key earnings contributor. Earnings growth drivers will stem from the continued increase in demand from local market for both MPM and ILF segments, and contribution from “Family-Mart” convenience stores – with the opening-up of HEROCA business and all “Family-Mart” stores in shopping malls given the government now has adopted a more relaxed stance on RMCO. Conversely, higher contribution from its POA segment is expected to trickle in 3Q21 given current CPO prices are trading at multi-year high and trade above RM3,000/MT.
• Our call. We maintain our FY21/21 earnings forecast of RM266m/RM293m respectively. After rolling forward our valuation to FY22, our SOP-derived TP rises to RM6.23 from RM5.97 previously, which implies a FY21F PER of 56.1x. Maintain HOLD as we believe fundamentals have been well reflected.

Source: BIMB Securities Research - 30 Nov 2020