• 9MFY3/24 net profit of RM339.1m (+24% yoy) made up 84%/83% of our/ Bloomberg consensus’ full-year forecasts, in line due to seasonality.

• Management is cautiously optimistic of prospects for the rest of FY3/24F.

• Reiterate Add, with a GGM-derived target price of RM6.10.

9MFY24 results tracking in line

• QL Resources posted a record quarterly net profit in 3QFY3/24 of RM123.6m (+27.2% yoy), bringing its 9MFY3/24 net profit to RM339.1m (+24.0% yoy), making up 84%/ 83% of our/Bloomberg consensus’ full-year forecasts. We deem the results in line as QL’s 4Q numbers are typically weaker.

• Group pre-tax margins held steady qoq in 3QFY3/24 as improved performance at its marine product manufacturing (MPM) division helped to mitigate normalising margins in its other segments.

Key takeaways

• Management in its outlook remained cautiously optimistic of QL’s prospects for FY24F. QL’s 4Q is typically its weakest quarter in each FY, accounting for 15-20% of profits.

• Management sees cost subsidies for Malaysian farm operations, contributions from its newly acquired layer farm, as well as declining surimi input costs, as supporting the main MPM and integrated livestock farming (ILF) segments.

• QL’s convenience store chain (CVS) division’s 9MFY24 pre-tax margin was relatively stable yoy at 5.5% (9MFY23 5.6%); management said improved efficiencies at its stores helped to mitigate the impact of higher operating costs.

Add call maintained

• We currently have an Add call on QL Resources with an unchanged GGM-derived target price of RM6.10. While valuations at 33x CY24F P/E are at a premium to most of its consumer sector peers (see Fig 2), we see its healthy FY24-26F ROE generation of >14% supporting valuations. We also see QL as a play on the food security theme in Malaysia. The key downside risk for QL, in our view, would be the removal of egg subsidies in Malaysia and the introduction of price caps instead, which could severely impact ILF margins. Diseases are an added risk for its ILF and MPM businesses. Re- rating catalysts could come from added government initiatives to promote food security.

Source: CGS-CIMB Research - 29 Feb 2024