4QFY20 core PATAMI of RM43.0m (QoQ: -43.6% YoY: -4.3%) brought FY20 amount to RM239.3m (+9.6%), which is in line with ours (97.0%) and consensus (96.1%) estimates. Our forecasts remain unchanged. After rolling over our valuation year to FY22, our TP rises from RM8.20 to RM8.75 based on an unchanged 50x earnings multiple.

In line. 4QFY20 core PATAMI of RM43.0m (QoQ: -43.6% YoY: -4.3%) brought FY20 amount to RM239.3m (+9.6%), which is in line with ours (97.0%) and consensus (96.1%) estimates.

Dividend. None declared for the quarter (4QFY19: None). FY20: None declared yet for FY20 (FY19: 4.5 sen). QL typically only declares dividend once a year, usually in Jul of the following FY.

QoQ. Sales declined of -11.6% resulting in -43.6% decline in core PATAMI was mainly due to poorer contribution from MPM and ILF divisions which declined -22.8% and -55.9%, respectively at the EBIT level. Weaker earnings in the MPM division were due to seasonality as QL was limited by comparatively lesser available fish catches in 4Q. Weaker ILF division profitability was due to weaker production volumes in Peninsular and Indonesian operations.

YoY. Overall revenue increased by 8.4%. This was mainly driven by higher sales figure in the ILF division and MPM divisions. Increased sales in the ILF division was due to increased feed raw material trade volumes and FamilyMart contributions (whose earnings are parked under the ILF division for the time being). MPM division’s sales and EBIT contribution increased 13.2% and 20.3%, respectively due to higher sales volumes from surimi, fishmeal and surimi-based products. Despite better profitability from MPM and ILF divisions, sharp decline in Palm Oil Activities ( -68.3% decline in EBIT) from lower harvested volumes led to overall core PATAMI declining - 4.3%.

YTD. Core PATAMI rose 9.6% in tandem with sales growth of 14.7%. Better profitability was driven by better contributions from MPM and ILF divisions for reasons mentioned in the YoY section above.

Outlook. Covid-19 outbreak is expected to have a mixed impact on QL. In the ILF division, lower raw material costs from cheaper commodity prices should lead to wider margins in FY21. Additionally, we understand egg prices have remained resilient thus far. With lockdowns in other countries expected to hit export sales in the MPM division, QL have shared that they were able to partially mitigate this by increasing supply to local retailers and diverting sales to other lesser affected countries. However, we expect QL’s FamilyMart division to suffer from weaker transaction volume in 1Q21 due to MCO reducing foot traffic, restricting opening hours, and temporarily closing of stores in shopping malls and airports. Going into FY21, we do not think FamilyMart will be able to open the targeted 80 new FamilyMart convenience stores due to MCO.

Forecast. Unchanged.

Maintain HOLD. After and rolling over our valuation year to FY22, our TP rises from RM8.20 to RM8.75 based on an unchanged 50x earnings multiple. Despite the rich valuations that QL currently trades at, its status as a consumer staple makes it one of the few companies relatively unaffected by Covid-19. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 30 Jun 2020