• Overview. QL Resources (QL) 1Q23 revenue and PBT jumped by 24% and 78% YoY respectively, thanks to strong contributions across its business segments. The Marine Product Manufacturing (MPM) segment strong performance was supported by higher sales volume following full fishing fleet returning to operations, higher selling price and better demand for surimi-based products. The Integrated Livestock Farming (ILF) segment profited from higher feed raw material trading volume and selling price, with improved margins especially from Vietnam operations. As for Convenience Store Chain (CVS) segment, sales that jumped by 44% YoY were pushed by the opening of 51 new stores and improved sales on higher footfall. QL’s PATAMI expanded by +95% YoY, on the back of EBIT margin expansion (+1.6ppt YoY) largely contributed by ILF segment, coupled with lower effective tax rate by -2.7 ppts to 22.8%.

• Against estimates: Inline. QL’s 1Q23 net profit came in within our expectation accounting 29% of our full year forecast but slightly above consensus at 31%.

• Outlook. We are positive on QL FY23 prospect on the back of improvement in its core business segments given that operations have normalised with demand recovering and returning to pre-pandemic levels. High input costs are the only concern, especially in QL’s MPM divisions, though we believe the group will be able to pass the additional costs in order to defend its margins.

• Our call. Maintain a BUY call with SOP-derived TP of RM5.75, which implies FY23F PER of 44x at the current market price. This valuation is fair given its stable earnings and dominant position as the largest local halal food producer in the country. We continue to like QL due to i) its strong brand name with stable earnings track record, ii) defensive nature of its businesses, iii)status as one of the largest marine product players in Asia and iv) high compliance to ESG and Halal standards.

Source: BIMB Securities Research - 30 Aug 2022