Results

• In-line –1HFY18 core net income of RM102.0m (yoy: +10.1%) was in-line with ours and consensus expectations, accounting for approximately 49% and 47% of ours and consensus forecasts respectively.

Deviations

• None.

Dividend

• None.

Highlights

• Yoy: 2QFY18 core net income was higher by 18.4% at RM59.8m due to better performance from the Integrated Livestock Farming (ILF) (better contribution from Indonesian and domestic poultry units) as well as Palm Oil Activities (POA) (higher FFB production and CPO price) divisions. This was in spite of weaker results from the Marine Product Manufacturing (MPM) division, which continued to suffer from post El-Nino low fish cycle.

• Qoq: 2QFY18 core net income rose by 41.7% to RM59.8m on the back of better contributions from ILF’s poultry unit and increased raw feed material trading volumes. This was more than enough to compensate for the poorer performance in the POA division which saw a decline FFB production and lower realised CPO average selling price.

• YTD: 1HFY18 core net income of RM102m increased by 10.1% yoy due to better performance in the ILF and POA divisions despite MPM’s PBT contribution sinking 15% due to lower fish catches.

• FamilyMart: QL’s venture into the convenience store business is on track. To-date, the group has opened 28 outlets, with plans to aggressively expand to 1,000 outlets by 2025 (source: Nikkei Asian Review).

• Prospects: We are neutral on the group’s prospects going forward. Cash handouts announced in Budget 2018 should see domestic consumption grow in 2018, which should benefit QL’s ILF division. FamilyMart, while still in its infancy has been warmly received by the Malaysian public thus far.

Risks

• Poorer than expected fish landings, lower than expected egg selling price, lower than expected FFB production, persistent weak consumer sentiment.

Forecasts

• Unchanged.

Rating

SELL ( ↔ ) TP: RM3.09

• While we reckon that QL is a well run company with strong fundamentals, robust growth track record, and diversified revenue streams, we believe the share price has run ahead of fundamentals.

Valuation

• We maintain our SELL call and TP of RM3.09 based on PE multiple of 23.5x of FY19 earnings. We like QL as a defensive consumer staple with strong management track record, however we believe the company is currently trading above its fair value.

Source: Hong Leong Investment Bank Research - 28 Nov 2017