3QFY20 core PATAMI of RM76.1m (QoQ: +9.2% YoY: +10.1%) brought the 9MFY20 sum to RM196.4m (+13.2%), which was in line with ours (80%) and consensus (78%) estimates. We deem this in line as 4Q is typically a seasonally weak quarter, typically accounting for approximately 23% of full year earnings. As earnings were in line, we keep our forecasts unchanged. W hile we like QL for its diversified revenue streams, seasoned management team and decent growth prospects, these positives have already been reflected in its premium valuations. We maintain our TP of RM8.20 (based on an unchanged 50x FY21 earnings) and HOLD call.

In line. 3QFY20 core PATAMI of RM76.1m (QoQ: +9.2% YoY: +10.1%) brought the 9MFY20 amount to RM196.4m (+13.2%), which was in line with ours (80%) and consensus (78%) estimates. We deem this in line as 4Q is typically a seasonally weak quarter, typically accounting for approximately 23% of full year earnings.

Dividend. None declared (3Q19: None). 9MFY20: None, 9MFY19: None. QL typically only declares dividend once a year, usually in Jul of the following FY.

QoQ. Core PATAMI rose 9.2% in tandem with higher sales of 3.2%. This was mainly driven by better profitability in the ILF (Integrated Livestock Farming) division (+34.9% at the PBT level) which was due to higher volume and margins from feed raw material trade as well as better contribution from Family Mart business, which earnings are parked under the ILF division segmental breakdown.

YoY. Revenue growth of 13.1% translated to core PATAMI increasing 10.1%. The better earnings was predominantly led growth in the ILF division (+25.4% at the PBT level) due to (i) higher contribution from regional and Sabah poultry operations; (ii) improved margin and feed raw material trade volumes; and (iii) Family Mart contribution.

YTD. In the Marine Product Manufacturing (MPM) division contribution at the PBT level rose 26.5% due to significantly higher surimi-based product sales. This was in spite of weaker fishmeal demand and price. ILF’s PBT contribution increased 7.0% due to similar reasons mentioned in the YoY paragraph. Palm Oil Activities contribution was lower by 49.5% due to lower processed volume and CPO price. Core PATAMI rose 13.2% in tandem with higher sales (+16.9%) due to better performance in MPM and ILF divisions.

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. QL currently has approximately over 180 operational Family Mart outlets with plans to open have at least 300 operational outlets by FY22. We are positive on the group’s venture as our internal calculations indicate Family Mart has already turned profitable in under 3 years, which was previously expected to take 7 years.

Forecast. Unchanged.

Maintain HOLD. While we like QL for its diversified revenue streams, seasoned management team and decent growth prospects, these positives have already been reflected in its premium valuations. We maintain our TP of RM8.20 (based on an unchanged 50x FY21 earnings) and HOLD call.

Source: Hong Leong Investment Bank Research - 28 Feb 2020