• Downgrade to HOLD (TP: RM6.70). QL’s FY24 PATAMI of RM437.8mn (+26% YoY) was in line with both our and consensus forecasts, at 105% and 99% respectively. QL’s 4QFY24 revenue spiked by +14% YoY, largely driven by higher sales in the ILF (+18% YoY) and CVS (+23% YoY) segments. While net profit surged by +35% YoY due to overall improved profit margin from MPM and CVS as well as higher profit gain from BM Greentech. We remain cautiously optimistic on QL's outlook, supported by resilient demand for basic necessities, especially from MPM and ILF segments. A single-tier interim DPS of 3.0sen was declared (vs FY23: 3.50sen), translating into 0.5% DY. Maintain our SOP-derived TP of RM6.70, implying an FY25F PER of 37x. However, we downgrade to HOLD (from BUY) due to limited upside potential and the 21% YoY share price rally, which we believe has fully factored in the positive demand and earnings growth prospects.

• Key highlights. QL’s FY24 revenue and PBT surged by +7% YoY and +30% YoY respectively, contributed by positive growth across all segments. The improved performance in the MPM segment (PBT: +14% YoY) was mainly driven by improved margins due to better fish landing and stronger export prices. Furthermore, the ILF segment experienced robust performance (PBT: +24% YoY) thanks to higher contributions from Malaysia farming operations from the newly acquired layer farm along with the continued government subsidy on egg costs. As for the CVS segment, the strong performance (PBT: +35% YoY) was primarily driven by the increase of 38 stores and 32 FM Minis YoY, along with improved store operation efficiency, which facilitated better margins. However, on a QoQ basis, 4QFY24 PATAMI drop by -20% to RM98.7mn, due to seasonal factors affecting fishing activities, volatile commodity prices affecting margins, and decreased average store sales.

• Earnings Revision. No changes to our forecast.

• Outlook. We remain cautiously optimistic about QL's outlook, as resilient consumer demand for basic food needs persist despite inflationary pressure. MPM earnings will remain stable, backed by stable surimi-based products and contributions from new plants, which will mitigate lower fish and fishmeal selling prices. Demand for ILF segment to remain stable with a better productivity from Malaysia operations. Additionally, the EPF Account 3 withdrawal together with efforts to enhance store operating efficiency, will support CVS segment earnings growth. However, downside risks include: i) ample fish supply and higher competition from surimi could dampen selling prices, ii) the volatility of commodity raw material prices, and iii) the anticipated egg price control and cost subsidy mechanism revision, which will slightly impact the ILF segment.

Source: BIMB Securities Research - 31 May 2024