• Overview. QL’s 1Q22 PBT slipped 25% yoy to RM60.7m mainly due 1) lower sales across all MPM activities and higher operation costs as a result of lower production volume due to re-emergence of low fish landing cycle and supply disruption on drastic surge in Covid-19 cases, and 2) lower FFB production and translation loss due to stronger Indonesia Rupiah, despite a higher ASP realised for CPO. On contrary, ILF segment improved significantly resulting from higher feed raw material trading price and improved FamilyMart contribution. On quarterly basis, the disappointing results was due to lower profit contribution from allsegments mainly due to lower selling volume and higher operating costs in MPM segment, 2) severe margins erosion in farming products due to higher feed raw material prices, and 3) RM79m oneoff remeasurement gain under MFRS 3 Business Combination following the acquisition of Boilermech recorded in 4Q20 in POCE segment.
• Against estimates: Below. QL’s profit came-in below our and consensus’ estimates. Group’s PBT margin contracted to 5% from 8% in 1Q21 with MPM and POCE margins declined to 15%/8% respectively from 20%/24% in 1Q2
• Outlook. Despite the unencouraging earnings results, we believe QL would continue to attract high valuation due to: 1) its excellent track record of growing both revenue and profit; 2) consumer-driven business which is regarded as recession-proof; 3) its status as one of the largest marine product players in Asia; and 4) its high compliance to ESG and Halal standards which will continue to attract global funds. The catalyst for future growth will be driven by 1) stable demand for its marine products; 2) stable margins from ILF once supply/demand situation normalise especially in Peninsular Malaysia, 3) better margin from POCE segments on account of higher ASP of palm products; and 4) expansion of FamilyMart business.
• Our call. Following this result, we revised our FY21/FY22 earnings forecast lower to RM265m and RM288m respectively from RM293m and RM327m previously as we adjusted segments sales, costs and margins assumptions. Maintain HOLD with new SOP-derived TP of RM6.00 (RM6.23 previously), which implies a FY22F PER of 51.5x at current market price.

Source: BIMB Securities Research - 26 Aug 2021