2QFY21 core PATAMI of RM70.1m (QoQ: +37.9%; YoY: +0.6%) brought 1H21 sum to RM121.0m. This is in line with ours (45.4%) and consensus (44.8%) estimates as we deem 2H a seasonally stronger half. Post annual report update, our FY21/22/23 earnings are tweaked upwards by 0.2%/0.8%/0.5%. As a result, our TP rises to RM5.88 (from RM5.83) based on unchanged 50x earnings multiple of FY22 earnings. Maintain HOLD.

In line. 2QFY21 core PATAMI of RM70.1m (QoQ: +37.9%; YoY: +0.6%) brought 1H21 sum to RM121.0m. This is in line with ours (45.4%) and consensus (44.8%) estimates as we deem 2H a seasonally a stronger half which typically accounting for ~52% of full year earnings. Additionally, we expect Family Mart profitability to improve ahead from relaxation of MCO restrictions.

Dividend. None declared (1H21: none). 2Q20: none (2H20: none). QL typically only declares dividend once a year, usually in Jul or Aug of the following FY.

QoQ. Increased Marine Product Manufacturing (MPM) (+10.3%) and Integrated Livestock Farming (ILF) (+13.2%) sales more than compensated for weaker Palm Oil Activities (POA) (-5.4%) revenue, resulting in overall higher sales (+11.1%). Better MPM earnings (PBT: +19.0%) were due to seasonal factors as well as increased aquaculture contribution. Strong recovery in ILF earnings (PBT: +525.0%) was mainly due to better Family Mart performance (which earnings are parked under ILF division for the time being) which was adversely impacted by MCO restrictions in 1QFY21 as well as better raw material trading volumes. Overall, core PATAMI grew +37.9%.

YoY. Sales were flat (+0.5%) as increased sales for MPM (+6.2%) and POA (+14.0%) were cancelled out by weaker ILF (-3.1%). Increased MPM contribution (PBT: +19.0%) resulted from stronger demand for QL’s surimi products coupled with better cost efficiencies associated with increased production volume. Weaker ILF contribution (PBT: -16.1%) is predominantly due to lower raw material trading price and farm produce price in Peninsular Malaysia and Indonesia. Core PATAMI was flat (+0.6%).

YTD. QL reported flat sales (-0.9%) and core PATAMI (+0.6%). Weaker performance from Family Mart associated with MCO restrictions on operations in 1QFY21 were compensated by better MPM division profitability (PBT: +35.0%) due to similar reasons mentioned in YoY paragraph.

Outlook. We are positive on the ILF division’s long term earnings, as they continue to tap into growing egg consumption in Vietnam and Indonesia. Relaxation of MCO rules and returning foot-traffic to public areas should see Family Mart earnings rebound. While the worst may be over, we reckon Family Mart has even more room for growth given their rapid outlet expansion plans and current soft sales in outlets in travel hubs (airports, MRT stations etc.) which we expect to rebound even further next year, as travel begins to return to normalcy with vaccine optimism. Furthermore, we expect better profitability in the POA division from higher CPO prices, which have risen since end-Sep.

Forecast. Post annual report update, our FY21/22/23 earnings are tweaked upwards by 0.2%/0.8%/0.5%, respectively.

Maintain HOLD. Our TP rises to RM5.88 (from RM5.83) reflecting the earnings upward revision, based on 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 (56.6x forecasted FY21 earnings).

Source: Hong Leong Investment Bank Research - 30 Nov 2020