• Overview. QL Resources (QL) 3QFY23 revenue and PATAMI jumped by  16% and 63% YoY respectively, thanks to strong contribution from Marine  Product Manufacturing (MPM) and Integrated Livestock Farming (ILF),  though dampened by weak Palm Oil & Clean Energy (POCE) division. The  MPM segment good performance was supported by higher sales volume and selling price (from strong USD) on normalised operations. The ILF segment benefited from higher feed raw material trading volume and price as well as higher farm produce selling price due to tight supply of eggs in both Vietnam and Malaysia. As for Convenience Store Chain (CVS)  segment, despite opening 75 additional new stores, PBT decreased by  63% YoY mainly due to lower average store sales no thanks to tepid consumer demand and higher operating costs.

• Highlight. QL’s PBT increased marginally or by 1% QoQ. The strong earnings from ILF segment offset the drop in MPM, POCE and CVS  segments(refer table 2). All the 3 segments margin were lower, impacted by higher input and labour costs.

• Against estimates: Inline. QL’s 9MFY23 PATAMI of RM273.5mn (+85%  YoY) came in line with our full year expectation at 79%, but slightly above consensus at 84%.

• Outlook. We are still optimistic on QL’s future growth, premised on higher export demand for surimi based products and recovery in regional  (Vietnam and Indonesia) eggs prices due to strong demand. However, CVS segment could see slower earnings growth in the near-term, on the back of cautious consumer spending given inflationary environment.

• Our call. We maintain our SOP-derived TP of RM6.30, which implies  FY24F PER of 41x. We downgrade our call to a HOLD (from a BUY) as valuations have become lofty after share price gained 27% over the past 12-month. Additionally, we believe current valuation has largely priced in its resilient fundamentals.

Source: BIMB Securities Research - 1 Mar 2023