• Overview. QL’s 4Q22 PBT slipped 37%/4% yoy/qoq to RM93m mainly due to 2 key reasons. Firstly, lower profit contribution from MPM segment due to margin erosion caused by 1) higher fuel costs, 2) global supply chain disruption, and 3) lower production volume. Secondly, there was a severe margin erosion in the POCE segment due to the absence of a one-off remeasurement gain amounting to RM79m following the acquisition of Boilermech in 4Q21. On the contrary, the ILF segment improved significantly resulting from a recovery in selling price due to reduced supply and also government cost subsidy to mitigate the rise in feed raw material costs during the price control period in Malaysia operations. This was further added by a strong recovery in egg prices in Vietnam with market normalising further following the lifting of stringent Covid-19 containment measures.

• Against estimates: Above. QL’s FY22 profit came in above our estimates. Group’s PBT margin fell to 6% from 10% in FY21 with MPM, and ILF margins declining to 17% and 1% respectively from 21% and 3% previously registered in FY21 mainly due to higher input costs and additional Covid-19 compliance expenses. Conversely, CVS’s margin improved to 7% vs. 3% in FY21 resulting from a higher sales and year-end inventory provision reversal.

• Dividend. Board has proposed a final single-tier DPS of 3.50sen for FY22 (FY21: 3.50sen), translating to a DY of 0.7%.

• Outlook. We are positive on the long-term prospect of QL, premised on: 1) its excellent track record of growing revenue and profitability; 2) a recession-proof business model; 3) its status as one of the largest marine product players in Asia, and 4) high compliance to ESG and Halal standards and therefore, the ability to attract global funds. The catalyst for future growth will be driven by the expansion of its convenience store chain i.e., FamilyMart business.

• Our call. We make no adjustment to our forecast at this juncture. Maintain a BUY call with SOP-derived TP of RM5.75, which implies FY23F PER of 43.7x at the current market price.

Source: BIMB Securities Research - 31 May 2022