• Overview. QL’s 3Q22 PBT slipped 11% yoy to RM97m mainly due to 2 key reasons. Firstly, lower profit contribution from MPM segment mainly due to margin erosion caused by higher input costs related to higher fuel cost and global supply chain disruption. Secondly, there was severe margins erosion in farming products due to higher feed raw material prices and slow recovery in egg selling price coupled with price control imposed in December 2021. On contrary, POCE segment improved significantly resulting from positive contribution from plantation division on higher CPO selling price and the inclusion of Boilermech as subsidiary. On quarterly basis, results were encouraging due to higher profit contribution from all segments as well as gain on share of profit from associate amounting to RM0.23m as oppose to RM0.18m in 2Q22.

• Against estimates: Above. QL’s 9M22 profit came in above our estimates, making 94% of our full year forecast. Group’s PBT margin fell to 6% from 9% in 9M21 with MPM and ILF margins declined to 18% and 1% respectively from 22% and 3% previously registered in 9M21.

• Outlook. We believe QL would continue to post better performance this financial year given: 1) qoq performance is on track to achieve better result in FY22; 2) its ILF segment is well diversified to weather any weakness in poultry business as earnings will be cushioned by its raw materials trading division and Family Mart business, 3) consumer-driven business which is regarded as recession-proof will benefit from the reopening of economy; and 4) POCE segment is well-positioned to benefit from rising CPO price.

• Our call. Following this result, we revised our FY22/FY23 earnings forecast higher to RM189m and RM280m respectively from RM159m and RM272m previously as we adjusted POCE and ILF segments’ revenue, costs and margins assumptions. Maintain BUY with new SOP-derived TP of RM5.75 against RM5.67 previously, which implies a FY22F PER of 63.0x at current market price.

Source: BIMB Securities Research - 24 Feb 2022