• Following QL’s analyst briefing, we remain convinced on QL prospects especially in delivering solid growth on all its three key segments, especially the thriving Convenience Store Chain, “Family Mart” business. QL remains a fairly safe consumer stock to hold for the long haul.

• Given the optimistic medium-to-long-term view owing to a recovery in the overall demand and supply chain, we reiterate a BUY call on QL with SOP-derived Target Price of RM5.75.

The key takeaways from the analyst briefing are:

• Although QL expects the coming quarters to remain challenging, barring further unforeseen events, business performance is expected to remain intact in FY23 especially the Marine Product Manufacturing (MPM) and Family Mart (FM) business pillars.

• Integrated Livestock Farming ILF) business is expected to stage a recovery in 1Q23 as demand may improve. Additionally, the Malaysian government subsidy for egg and chicken will partly cushion the impact of higher feed costs - albeit a hike in minimum wages and uncertainty on government subsidy after 4 June 2020.

• Although revision on monthly minimum wage and hike in surimi and other ingredients costs will result in an increase in production costs for MPM’s business, further price adjustment and strong demand is expected to protect margin. Hence, a positive outlook for MPM in 1Q23.

• QL is looking to dispose its palm oil division given the company’s focus on sustainable solutions to cater for increased awareness in ESG initiatives i.e., focusing in clean energy sector namely bioenergy, water treatment and solar energy in Boilermech.

• FM division is set to deliver a solid prospect banking on rapid expansion amid a total of 290 stores by 31st May 2022. This is in addition to 300 new stores in next 5 years while continue to refine and develop new channels such as FM Mini and online delivery channel (target 300 FM mini in next 5 years). This will also be aided by ‘restriction free operating’ hours given our move into the endemic phase since 1st April. The second central kitchen is expected to be fully completed by end of June 2022 where this will support additional capacity target of 600 stores in 5 years. Note that the existing central kitchen is capable to cater/support for approximately 300 stores. Overall, QL is optimistic on the performance and contribution from the CVS business.

• Outlook. We are positive on the long-term prospect of QL, premised on: 1) excellent track record of growing revenue and maintaining profitability; 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 the expansion of its convenience store chain i.e., FM business.

• Our call. We make no changes to our forecast at this juncture. Maintain a BUY with SOP-derived TP of RM5.75, which implies FY23F PER of 44.8x at the current market price. This valuation is fair valuation given its stable earnings, as well as its dominant position as the largest local halal food producer in the country.

Source: BIMB Securities Research - 2 Jun 2022