QL’s FY18 core PATAMI of RM206.2m (+5.3%) was in line with both ours and consensus expectations. Going forward, we expect the “zerorisation” of GST from 1 June 2018 to have a positive impact on consumer sentiment, boosting QL’s poultry and Family Mart sales. Additionally, better fish landings should see better profitability in the MPM division as dry weather from post El-Nino tapers off. We increase our FY19/20 forecasts to account for the recovery in the MPM division. We maintain our HOLD call, with a higher TP of RM5.10 after rolling over our valuation to FY20.

In line. Reported FY18 core PATAMI of RM206.2m was in line with ours and consensus expectations, accounting for 99.4% and 95.2% of full year forecasts, respectively.

Dividend. Proposed DPS of 4.5 sen for FY18 (FY17:3.3 sen). This was higher than our expected DPS of 3.5 sen.

QoQ: Core PATAMI decreased by 19.9% due to lesser contribution from 1) MPM due to seasonality; 2) POA from lower average CPO price (4QFY18: RM2,416/mt vs 3QFY18: RM2,592/mt), lower FFB production and oil extraction rate (OER); and 3) ILF as a result of lower contribution from Peninsular and Indonesian poultry units.

YoY: Core PATAMI dipped 1.8% to RM46.4m due to lesser contribution from 1) MPM due to lower than expected fish catches from post El-Nino weather; and 2) POA as a result of significantly lower CPO price (4QFY18: RM2,426/mt vs 4Q17: RM3,129/mt).

YTD: Core PATAMI rose 5.3% to RM206.2m from RM195.9m thanks to ILF’s higher contribution from East Malaysia and regional poultry operations as well as lower effective tax rate (FY18: 15.5% vs FY17: 20.6%).

Family Mart: QL’s venture into the convenience store business is on track. To date, the group has opened 46 outlets, with plans to aggressively expand to 1,000 outlets by 2025 (source: Nikkei Asian Review).

Prospects: We expect the “zerorisation” of GST from 1 June 2018 onwards to have a positive impact on consumer sentiment, boosting QL’s poultry and Family Mart’s sales. Additionally, better fish landings should see better profitability in the MPM division as dry weather from post El-Nino tapers off. However, lower forecasted CPO price in CY18 of RM2,500/mt (vs RM2,705/mt in CY17) would have an impact on QL’s POA division.

Forecast. We raise our FY19/20 forecasts by 3.6%/7.2% to account for expected recovery in the MPM division.

Maintain HOLD. After earnings adjustment and rolling over our valuation year to FY20, we raise our TP to RM5.10 from RM4.70 pegged to an unchanged PE of 35x based on FY20 EPS of 14.6.

Source: Hong Leong Investment Bank Research - 25 May 2018