1QFY21 core PATAMI of RM50.9m (QoQ: +18.4% YoY: +0.6%) is in line with ours (19.5%) and consensus (18.7%) estimates. We deem this in line as 1Q is seasonally a weak quarter, typically accounting for 20-22% of full year earnings. Keep forecasts unchanged. Maintain HOLD with unchanged TP of RM8.75 (50x FY22 EPS).

In line. 1QFY21 core PATAMI of RM50.9m (QoQ: +18.4%; YoY: +0.6%) is in line with ours (19.2%) and consensus (18.7%) estimates. We deem this in line as 1Q is seasonally a weak quarter, typically accounting for 20-22% of full year earnings.

Dividend. Declared DPS of 4.5 sen/share going ex on 5 Oct 2020 is associated with FY20. FY20 DPS: 4.5 sen/share. QL typically only declare dividend once a year, usually in Jul or Aug of the following FY.

QoQ. Slightly lower top line (-1.0%) was due to better Marine Product Manufacturing (MPM) (+11.4%) sales being offset by poorer Integrated Livestock Farming (ILF) (-5.2%) sales. Better MPM earnings (PBT: +49.1%) was due to seasonality from better fish landings. Weaker ILF profitability (PBT: -77.4%) was attributed to lower contributions from Indonesian farm operations, raw material trading volumes and contribution from Family Mart operations. Note that for the time being, Family Mart earnings are included in the ILF segment. In addition to better MPM contribution, higher Palm Oil Activities (POA) contribution from higher FFB volumes and favourable currency movements resulted in core PATAMI rising 18.4.%.

YoY. Lower raw material trading volume, depressed farm produce price in Peninsular Malaysia and Indonesia as well as weak contribution from Family Mart during the MCO period from lesser foot traffic resulted in ILF PBT declining -71.2%. This was compensated by better performance in the MPM division (from higher sales volumes of fishmeal and surimi based products) and POA divisions (better CPO prices and favourable currency movement). Overall, core PATAMI was relatively flat (+0.6%).

Outlook. We understand local poultry demand has normalised to pre-Covid-19 levels as consumers no longer feel the need to stock up essential items such as eggs. While volatile poultry prices are expected to impact ILF profitability in the near term, we are positive on the ILF division’s long term earnings, as they continue to tap into growing egg consumption in Vietnam and Indonesia. Going into FY21, we expect QL to open ~60 new Family Mart stores mainly in sub-urban locations which have shown strong foot traffic. Relaxation of MCO rules and returning foot-traffic to public areas should see Family Mart earnings rebound. Furthermore, we expect better profitability in the POA division from higher CPO prices, which have risen since end-June.

Forecast. Unchanged.

Maintain HOLD. We maintain our HOLD call and TP of RM8.75 based on an unchanged 50x earnings multiple of FY22 earnings. While we like QL for its diversified revenue streams, savvy management and growing Family Mart division, we reckon QL is fairly priced at current levels. At current price, QL is trading at a PE multiple of close to 60x FY20 earnings

Source: Hong Leong Investment Bank Research - 27 Aug 2020