Reported 9MFY19 core PATAMI of RM104.4m (YoY: +12.3%) was in line with ours and consensus estimates, at 77.1% and 75.9% respectively. We keep forecasts unchanged. We like QL for its diversified revenue streams and decent growth prospects. Despite this, we believe the share price has risen beyond justifiable levels with PE valuation of approximately 50x. Our unchanged TP of RM5.10 is pegged to 35x FY20 EPS of 14.6 sen. Maintain SELL on rich valuations.

In line. Reported 9MFY19 core PATAMI of RM104.4m (YoY: +12.3%) which was in line with ours and consensus estimates, at 77.1% and 75.9% respectively.

Dividend. None Declared (3QFY18: None).

QoQ: Core PATAMI grew 14.3% to RM69.2m (from RM60.5m) mainly due to seasonally better Marine Product Manufacturing (MPM) (PBT: +32.5%) profitability and rebound in Palm Oil Activities (POA) operations (PBT: RM8.7m vs RM1.6m losses in 2QFY19). Despite lower POA QoQ sales (from lower CPO price 3QFY19: RM1,916/MT vs 3QFY19: RM2,198/MT), better POA profitability was attributed to better operational milling efficiencies.

YoY: Top line growth of 9.7% resulted in core PATAMI increase of 19.5%. Better profitability was driven primarily from robust MPM growth (PBT: +31.6%) due to higher contributions from surimi-based products and prawn aquaculture. Furthermore, better Integrated Livestock Farming (ILF) (PBT: +6.8%) was attributed to higher average selling price of raw feed material traded.

YTD: Better core PATAMI (+11.1%) was mainly due to better contribution from the MPM (PBT: +18.9%) and ILF (PBT: +8.4%) divisions for similar reasons mentioned above. The better results were achieved in spite of decline in POA profitability (PBT: - 45.5%) which was due to lower average CPO price (9MFY19: RM2,160 vs 9MFY18: RM2,660) and poorer FFB production in 1HFY19.

Family Mart: QL’s venture into the convenience store business is on track. To date, the group has opened 83 Family Mart outlets, with plans to aggressively expand to 1,000 outlets by 2025.

Prospects: We are encouraged by QL’s foray into the convenience store business, as Family Mart seems to be well received by Malaysian consumers. Despite this, we expect this business segment to be loss making in the short term until Family Mart achieves economies of scale, which is imperative for convenience store businesses.

Forecast. Unchanged as the Results Were Inline.

Maintain SELL. We like QL for its diversified revenue streams and decent growth prospects. Despite this, we believe the share price has risen beyond justifiable levels with PE valuation of approximately 50x. Our unchanged TP of RM5.10 is pegged to 35x (in line with regional peers) FY20 EPS of 14.6 sen.

Source: Hong Leong Investment Bank Research - 1 Mar 2019