QL chalked in FY22 core PATAMI of RM217.3m (-6.5% YoY) which was in line with our/consensus expectations at 102%/103%, respectively. We gather that the softness in MPM was due to (i) lower sales volume for fishmeal, surimi-based products and aquaculture; (ii) tough operating environment in low fish landing cycle; and (iii) shortage of foreign fishing crew. We believe CVS division will continue to contribute positively for the group with the resumption of economic activities coupled with border reopening. Note that CVS segment chalked in healthy PBT growth of 2.4x YoY/ 3.4x YTD with outlet expansion. Maintain HOLD with unchanged TP of RM4.73 based on 50x PE of FY23 EPS.

Within estimates. QL registered 4QFY22 revenue of RM1.4bn (QoQ: -2.0%; YoY: +12.6%) and core PATAMI of RM69.4m (QoQ: +16.1%, YoY: +97.9%). This brought FY22 sum to RM217.3m (YoY: -6.5%) which was in line with our and consensus estimates, at 102% and 103% of full year forecast, respectively.

Dividend. Declared final single tier dividend of 3.5sen/share subject to approval of shareholders at the forthcoming AGM. (FY21: 3.5sen/share)

QoQ. Revenue fell -2.0% dragged by the declines in marine product manufacturing MPM (-12.7%), palm oil and clean energy POCE (-5.6%) and convenience store chain CVS (-0.5%), offsetting the increase from integrated livestock farming ILF (+3.7%). Improvement from ILF was attributable to higher feed raw material trading volume and selling price. CVS revenue was fairly unchanged as sales per store normalized post pent up demand in 3QFY22 with reopening of the economy since Oct 2021. Core PATAMI bumped up by +16.1% on the back of lower effective tax rate by 5.5ppt (4QFY22: 23.7% vs 3QFY22: 29.1%) coupled with lesser MI charge.

YoY/YTD. Overall top line climbed by 12.6% YoY/ 19.8% YTD driven by higher contributions across POCE (>100% YTD), ILF (+20.0% YTD) and CVS (+31.3% YTD) offsetting the weakness in MPM division (-6.6% YTD). Decline in MPM revenue was due to lower sales volume for fishmeal, surimi-based products and aquaculture business. POCE registered better growth on the back of good project progress in Boilermech and higher CPO selling price. ILF division enjoyed the high feed raw material trading price and better farm produce selling price. However, core PATAMI registered a decline of -6.5% YTD to RM217.3m with the erosion in EBITDA margin (- 4.3ppt YTD) coupled with higher effective tax rate (FY22: 26.7%, FY21: 24.8%).

Outlook. We are surprised with the weak performance in MPM as the segment has historically dubbed as the earnings driver with the sales of its frozen food products. We gather that the softness was due to (i) lower sales volume for fishmeal, surimi based products and aquaculture; (ii) tough operating environment in low fish landing cycle; and (iii) the shortage of foreign fishing crew. As for ILF, we opine the segment to be supported by the government’s cost subsidy which could help to partially buffer margin compression given the challenging commodity prices. We believe CVS division will continue contribute positively for the group with the resumption of the economic activities coupled with border reopening. Note that CVS segment chalked in healthy PBT growth of 2.4x YoY/ 3.4x YTD with continuous outlet expansion.

Forecast. Unchanged. Reiterate 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 - 31 May 2022