QL’s chalked in 9MFY22 core PATAMI of RM147.9m (YoY: -25%) which came in broadly within our and consensus estimates at 69%/68% respectively. We expect MPM segment to record further recovery from resilient frozen food products and roll-out of more surimi based products to cater to domestic demand. As for ILF, we opine the segment to be supported by the government introduction of egg and chicken price subsidies which could help to partially buffer margin compression. We believe FamilyMart division to continue expanding from full reopening of the economy. Maintain HOLD with unchanged TP of RM4.73 based on 50x PE of FY23 EPS.

Broadly within expectations. QL recorded 3QFY22 results with sales of RM1.4bn (+12% QoQ; +26% YoY) and core PATAMI of RM59.8m (+30% QoQ, -22% YoY). This brought 9MFY22 sum to RM147.9m (YoY: -25%), making up 69%/68% of our and consensus forecasts. We deem this to be broadly within expectations as we expect recovery ahead with better sales from FamilyMart coupled with introduction of egg and chicken price subsidies in early Feb.

Dividend. None declared (9MFY22: none). 3QFY21: none (9MFY21: none). QL typically declares dividend only once a year, usually in Jul or Aug of the following FY.

QoQ. Sales increased by 12% to RM1.4bn. Palm oil and clean energy (POCE) recorded the biggest jump of +48% attributable to project delivery resumption for Boilermech with the full reopening of economy, higher FFB tonnage harvested and better CPO selling price. Marine product manufacturing (MPM) growth of +16% was thanks to higher volume with seasonal high fish landing cycle, higher selling price for upstream activities coupled with better performance from surimi -based products. Integrated livestock farming (ILF) was a tad up by +6% from higher contribution from FamilyMart which then recorded a 191% jump in PBT. Core PATAMI expanded by +30%, on the back of EBIT margin expansion (+1.3ppt) which largely stemmed from ILF segment.

YoY/YTD. Top line grew by 26% YoY/ +23% YTD driven by higher sales from POCE (>100% YoY/ YTD) and ILF (+19% YoY/+24 YTD) divisions. Improvement in POCE sales was on the back of consolidation of Boilermech’s sales since 4QFY21 coupled with higher CPO price. ILF, on the other hand, benefited from the high feed raw material trading price, improved egg volume and farm produce as well as surge in sales from FamilyMart. MPM sales softened by -8% YTD as a result of disruption in fishing activities from the shortage of foreign fishing crew caused by Covid -19 lockdown in the 1HFY22. Despite that, core PATAMI fell by -22% YoY/-25% YTD due to EBITDA margin compression by -3.6ppt YTD attributable to (i) higher operating cost in MPM from lower production volume; and (ii) ILF’s depressed egg selling price, erosion in margin, and additional Covid-19 compliance cost.

Outlook. We understand that frozen seafood recoded robust sales during 3QFY22. The group is in the midst of launching more surimi-based products to meet the increasing domestic demand. Hence, we expect MPM segment to record further recovery in 4QFY22. As for ILF, we opine the segment to be supported by the government introduction of egg and chicken price subsidies which could help to partially buffer margin compression given the challenging commodity prices. We believe FamilyMart division to continue expanding from full reopening of the economy. Additionally, the group has also implemented online delivery channel since end of last year which recorded encouraging results.

Forecast. Unchanged.

Maintain HOLD with unchanged TP of RM4.73 based on 50x PE to FY23 EPS. We opine QL’s current risk reward profile to be fair while its rich valuation is justified by its status as a key consumer staple

Source: Hong Leong Investment Bank Research - 25 Feb 2022