• Overview. QL Resources (QL) 2QFY23 revenue and PBT jumped by 31.3%  and 82.6% YoY respectively, thanks to strong contribution across its business segments. The Marine Product Manufacturing (MPM) segment good performance was supported by higher sales volume and selling price (from strong USD) on normalised operations. The Integrated Livestock Farming (ILF) segment benefited from higher feed raw material trading volume and price as well as higher farm produce selling price with  Vietnam operations fully operational. As for Convenience Store Chain  (CVS) segment, sales leaped by 57% YoY boosted by additional opening  of 70 new stores with higher average store sales and margin. QL's PATAMI  expanded by 104.4% YoY, with margin expansion (+2.1ppt YoY) on overall better operating efficiencies.

• Against estimates: Above. QL’s 1HFY23 PATAMI (+100% YoY) came in above our and consensus expectation, accounting 63% and 59% of full year forecast respectively. The positive deviation against our estimate was mainly due to stronger-than-expected sales from ILF and MPM  segment as well as lower-than-expected effective tax rate. Factoring the  strong results, we adjusted our FY23/FY24 earnings forecast upwards by  24%/17% respectively.

• Outlook. We are positive on QL FY23 prospect on the back of improvement in its core business 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 and CVS 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 higher SOP-derived TP of RM6.30 (from  RM5.75), which implies FY23F PER of 38.7x 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 Nov 2022