2QFY20 core PATAMI of RM69.7m (QoQ: +37.8% YoY: +15.1%) brought 6M20 core PATAMI to RM120.2m (+15.2%), which was in line with ours and consensus estimates, accounting for 48.8% and 48.4% of full year earnings respectively. Our forecasts remain unchanged. We like QL for its diversified revenue streams, seasoned management team and decent growth prospects. Despite this, we feel that share price has risen beyond justifiable levels. After rolling over our valuation year to FY21, our TP rises to RM6.56 from RM6.00 based on an unchanged 40x PE (+1SD). Our SELL call remains.

In line. 2QFY20 core PATAMI of RM69.7m (QoQ: +37.8% YoY: +15.1%) brought 6M20 core PATAMI to RM120.2m (+15.2%), which was in line with ours and consensus estimates, accounting for 48.8% and 48.4% of full year earnings respectively.

Dividend. None declared (2Q19: None). 6M20: None, 6M19: None. QL typically only declares dividend once a year, usually in Jul of the following FY.

QoQ. Core PATAMI rose 37.8% due to better contribution from Marine Product Manufacturing (MPM) (increased fishmeal and surimi-based product sales) and Integrated Livestock Farming (ILF) (higher sales from raw material trade and better contribution from Vietnam and Peninsular Malaysia poultry production units) divisions.

YoY. Core PATAMI growth of 15.1% was mainly due to better performance in the MPM division. MPM division registered growth of 36.4% at the PBT level due to increased fishmeal and surimi-based product sales. In the ILF division, higher contribution from Indonesia and Sabah poultry units resulted in increased PBT contribution of 2.3%. Meanwhile, In the Palm Oil Activities (POA) division, lower CPO price of RM1,970/mt in 2Q20 vs RM2,198/mt in 2Q19 resulted in POA revenue declining 38.7%. Despite this, better oil extraction rate resulted in PBT of RM0.8m (vs. –RM1.6m losses in 2Q19).

YTD. 15.2% increase in core PATAMI was mainly driven by increased profitability in the MPM division (+43.4% at the PBT level) due to reasons mentioned in the YoY segment.

Family Mart venture. QL currently has 156 operational outlets, with plans to open 300 outlets by FY22. We are very positive on the group’s venture into the convenience store business as the profitability of stores has far exceeded our expectations due to (i) higher average ticket amount of over RM10 (vs less than RM6 for its rivals); (ii) higher average customer count; and (iii) skewed sales mix toward fresh food. QL shared that the capex requirements for each store averages RM400k.

Outlook. We expect QL to reduce their reliance fish landings by increasing fish and prawn aquaculture farming activities (MPM division). Furthermore, QL intends to ramp up egg production capacity to capitalise on rising incomes in Indonesia and Vietnam.

Forecast. Unchanged.

Maintain SELL. We like QL for its diversified revenue streams, seasoned management team and decent growth prospects. Despite this, we feel that share price has risen beyond justifiable levels. After rolling over our valuation year to FY21, our TP rises to RM6.56 from RM6.00 based on an unchanged 40x PE (+1SD). Our SELL call remains

Source: Hong Leong Investment Bank Research - 2 Dec 2019