FY18 Within Expectations

FY18 core net profit grew by 11% yoy to RM206m, which was broadly within expectations. Despite a relatively weaker 4QFY18, FY18 saw yoy revenue growth across all segments, with double digit topline growth seen in the ILF (+11%) and POA segment (+10%) and a 3% yoy revenue growth in the MPM segment. We continue to like QL due to its sustainable growth prospects, but maintain our HOLD call with a revised TP of RM5.39 after its recent share price outperformance.

FY18 Revenue Growth of 8.4% Yoy, Growth Across All Segments

QL’s FY18 revenue increased by 8.4% yoy driven by growth across all segments: Integrated Livestock Farming (ILF) grew by 10.5%, Marine Products Manufacturing (MPM) grew by 3.2% and Palm Oil Plantation (POA) grew by 10.1%. The growth came from higher surimi-product contribution despite lower fish catch in the last two quarters in the MPM segment, an increase in FFB production and processing in the POA segment and higher contribution from East Malaysia and regional poultry operations for the ILF segment. The higher revenue and lower effective tax rate caused FY18 core net profit to improve by 11% to RM206m which made up 95% of our and consensus estimates.

Weak 4QFY18 Across the Board

On a quarterly basis, revenue was weaker across the board as low fish cycle in the MPM segment, lower CPO prices in the POA segment and lower volume of raw material traded as well as lower contribution from the Indonesia Poultry units in the ILF segment dragged 4QFY18 revenue down by 12.1% qoq and 3.6% yoy. Similarly, PBT was also dragged down by - 28% qoq mainly due to a sharp -45% PBT decline in the MPM segment.

Maintain HOLD With a Revised DCF-based TP of RM5.39

We revise up our forecast for FY19E and FY20E and introduce FY21E estimates. We expect further improvements on the back of higher FFB processed, recovery in MPM margin post El-Nino, and growing momentum of Family Mart store expansion. Although we continue to like QL due to its position as a diversified consumer play in addition to brighter prospects on improving consumer sentiments moving forward, we maintain our HOLD call on QL with a higher TP of RM5.39 as we believe positive catalysts have been priced in. Risks include the effects of El-Nino, upside/downside to CPO pricing, upside/downside to egg prices, delays in capacity expansion and competition in the CVS segment. (This note marks a transfer of coverage)

Source: Affin Hwang Research - 25 May 2018