FY17 PBT growth of 4% yoy was driven by the 138%/24% yoy growth in POA/ILF respectively while the MPM segment declined by 13% yoy. Stripping off the gain on disposal of property, core net profit came slightly below our and consensus expectations at 94%/91% of fullyear estimates. Nonetheless, we expect FY18E to be driven by higher CPO pricing, more maturing palm oil trees, and better margins in the MPM/ILF segments. Maintain BUY with an unchanged TP of RM5.56.

FY17 Revenue Growth of 6% Yoy Due to Growth in All Segments

QL’s FY17 revenue increased by 6% yoy driven by growth across all segments: POA (+4% yoy,), MPM (+14% yoy), and ILF (+5% yoy). In 4Q17 particularly, MPM’s revenue was flat yoy due to lower contribution from surimi and fishmeal operations with an overall lower fish catch. ILF’s revenue increased slightly by 2% yoy as better contribution from the Vietnam poultry unit and Indonesian feedmill unit was offset by a major egg price correction in the Peninsular market caused by over-production by domestic players. Of the segments, POA showed the strongest revenue growth of 45% yoy due to the higher CPO price of RM3,129 (vs. RM2,321 in 4Q16) and volume of FFB processed by the Indonesian plantation unit.

PBT Helped by Better POA Profitability and ILF’s Gain on Disposal

FY17 PBT growth was 4.4% yoy with the PBT margin remaining flat at 9.4%. MPM’s PBT declined by 36% yoy in 4Q17 because of lower contribution from the surimi and fishmeal operations. ILF’s PBT increased by 133% yoy in 4Q17 mainly due to approximately RM10m of gain on disposal of investment properties. Excluding the one-off item, ILF’s PBT increased by 41% yoy on the back of better contribution from the Vietnam poultry and Indonesian feedmill units. 4Q17 POA PBT increased by RM11.7m to RM12.0m due to the same reasons mentioned above. Its 42%-owned associate, Boilermech also registered 43% yoy net profit growth in 4Q17, after 5 quarters of net profit decline. Stripping out the gain on disposal of property, core net profit (-3.2% yoy) of RM185.9m came slightly below our and consensus expectations at 94% and 91% of the respective full-year forecasts. Nonetheless, we expect a better fish catch to improve MPM’s FY18 PBT margin and the POA segment to continue doing well in FY18 underpinned by higher average CPO prices and the utilization of its CPO milling plant in Indonesia.

Maintain BUY With Unchanged DCF-based TP of RM5.56.

We maintain our earnings forecasts and continue to like QL as a diversified consumer play given its ability to weather tough times, its foray into the attractive downstream segment and strong management team. We maintain our BUY rating and 10-year DCF-based 12-month TP of RM5.56

Source: Affin Hwang Research - 30 May 2017