• Maintain BUY (TP: RM6.70). QL’s 1HFY24 PATAMI of RM215.5mn (+22% YoY) exceeded both our and consensus expectations, accounting for 56% and 58% respectively. The deviation was mainly due to lower-than-expected costs. In 2QFY24, QL's PATAMI rose to RM122.6mn (+32% QoQ, +31% YoY), driven by better sales and margin from all segments. We are optimistic about QL's FY24 outlook, supported by strong sales across all segments due to resilient consumer spending. Additionally, we expect margins to remain stable, supported by lower surimi input costs and cost efficiency measures. We raised our FY23f/FY24f earnings by 11%/10% to account for lower surimi input cost and feed cost. In tandem with earnings revision, our SOP-derived higher TP of RM6.70 (previously RM6.30), implying a FY24F PER of 39x. Maintain BUY call on QL.

• Key highlights. QL’s 2QFY24 revenue increased by 6% QoQ to RM1.7bn, driven by robust sales across all segments. The higher Marine Product Manufacturing (MPM) segment by +5% QoQ was mainly due to seasonally strong fish landing and higher fishmeal selling price. The Integrated Livestock Farming (ILF) segment soared by 6% QoQ, due to higher volume for feed raw material and improved farm productivity. As for the Convenience Store Chain (CVS) segment, revenue improved by 8% QoQ, thanks to the opening of 8 new stores and higher average store sales. Encouragingly, PATAMI jumped by +32% QoQ to RM122.6mn with a higher margin of 7.3% (+1.5 ppts QoQ), supported by better economy of scale, lower raw material cost, and improved operational efficiency in all segments.

• Earnings Revision. We raised our FY23f/FY24f earnings by 11%/10% as we adjusted for lower surimi input costs, feed costs, and higher margins.

• Outlook. We are optimistic on QL’s FY24 earnings prospects due to resilient consumer demand for staple goods and diversified revenue base. The MPM business will be supported by strong fishing landings from the new fishing season and lower input costs. The ILF outlook is cautiously optimistic, with sustained productivity and stable feed costs. Furthermore, we anticipate an improvement in the POCE segment driven by higher-margin project delivery from BM GreenTech (Clean Energy), while CVS's growth will be supported by a new store expansion plan.

Source: BIMB Securities Research - 30 Nov 2023