Analysts upbeat on QL Resources amid record quarterly profit

KUALA LUMPUR (Nov 30): Analysts have a positive outlook for QL Resources Bhd, after the group logged its best ever quarterly net profit in the second quarter ended Sept 30, 2023 (2QFY2024), which came in within the research houses' full-year forecast and consensus estimates.

The research houses attributed the strong quarterly earnings on the group's improved operational efficiency, especially its marine product manufacturing segment, which was supported by the convenient store chain segment.

Commenting on the group financial earnings, Maybank Investment Bank (Maybank IB) said, “We believe sequential earnings trajectory will remain positive, led by stable marine product performance, while integrated livestock and convenience store segments may experience challenges in relation to poultry's average selling price volatility and subdued consumer spending trends”.

The research house said the group's outlook remained resilient, with marine products operation being a key driver to its FY2024 earnings growth projection of 17%.

Maybank IB said it is maintaining its earnings estimate of RM406 million in core net profit for FY2024, RM433 million in FY2025, and RM444 million in FY2026.

"Potential weakness in its plantation business could also be mitigated by stronger contribution from its clean energy projects. That said, its convenience store operations may continue to be impacted by higher labour and energy costs, alongside slower sales momentum, amid a weaker consumer sentiment environment," it cautioned.

Meanwhile, MIDF Research said it was lowering its earnings forecast for FY2024 to FY2026 by 1%, 8.8%, and 6.8% respectively, despite QL Resources' earnings coming in within expectations.

"This was after factoring in (1) lower revenue and store expansion for the convenience store segment due to the weakening consumer sentiment; (2) reduced revenue from the palm oil and clean energy segment, owing to the decline in CPO (crude palm oil) price — in-line with our in-house plantation analyst's forecast, and (3) weaker demand from the Vietnam operations," it said.

MIDF Research said QL Resources' new Figo-brand seafood products production line is expected to commission by December, while it is currently applying for land partitioning and conversion of industrial land, as well as awaiting the certificate of completion and compliance for its worker’s quarters for its Hutan Melintang plant expansion project.

“The PT Hasil Laut plant is on track for commissioning in 4QFY2024. The group also mentioned that the clean energy business (under BM GreenTech) outlook remains positive, along with substantial orders on hand.

“For 3QFY2024, the group targets to kickstart the supply of inflight hot food to MAS Awana. While it is just a pilot phase, we are positive on this expansion plan, given that QL's centralised kitchen has the capability to provide catering and expand the revenue base.

“The store expansion of Family Mart Mini will continue at strategic locations but at a slower pace. Meanwhile, more Family Mart stores are expected to open in the northern region and east coast region. Overall, the capex allocation for FY2024F remains unchanged at RM300 million to RM400 million.”

Kenanga Research raised its net profit forecasts for FY2024 and FY2025 on QL Resources by 6% and 7%, to reflect higher margin assumptions.

“We like QL for (i) the consistent high export demand for its marine products, supported by robust fish landings and decreasing input costs, (ii) the high growth potential of its Family Mart convenience store franchise, highlighted by its popular Japanese-themed products and continued expansion, including the new Family Mart Mini outlets targeting petrol stations and highways, and (iii) its growing poultry business in Indonesia and Vietnam, driven by increasing protein consumption, as living standards rise. Value has emerged after the recent weakness in its share price,” it said.

Meanwhile, Public Investment Bank (Public IB) said it believes that consumer spending on staple goods will remain resilient, despite the weak global economic outlook.

“We foresee an improvement in the marine products segment's margins, on better production efficiency due to favourable fish landing and lower surimi input cost. While broiler operations should be slightly affected by the recent removal of subsidy, we think that the stronger layer operations performance due to the continued cost subsidy and lower feed cost will help offset the weaker broiler operations,” it said.

The research house also noted that its second central kitchen could cater to up to 500 additional Family Mart stores.

Kenanga Research and Public IB upgraded their calls on QL Resources to “outperform”, with Kenanga Research placing a higher target price (TP) for the group at RM5.95 (previously RM5.90), and Public IB also raising its TP to RM6.75 (previously RM6.60).

Maybank IB otherwise maintained its “hold” call with unchanged TP of RM5.90, while MIDF Research also maintained its rating of a “buy” call on QL Resources, with a slightly lower TP of RM6.25 (previously RM6.75), based on an updated growth rate of 3.5% (from 3.7%) and an unchanged weighted average cost of capital of 6.6%.

At the time of writing, shares in QL Resources traded 21 sen or 3.7% higher, accompanied by 15.95 million shares changing hands. At the current share price, the group's market capitalisation stood at RM13.68 billion. The counter was among the top gainers in early trade on Thursday.

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QL Resources logs highest net profit of RM122.6 mil in 2Q