Following our meeting with QL Resources (QL), we continue to foresee sustainable earnings growth for the company, underpinned by healthy consumer demand fueling its upstream expansion plans. We trim our earnings forecasts to reflect a slower recovery for QL’s palm oil segment and lower tax incentives, but still expect doubledigit core earnings growth in FY20, driven by its marine segment and Family Mart operations. Post-revision, we maintain our BUY rating on QL with an unchanged SOTP-derived TP of RM8.00.

MPM Operations to Expand Amid Healthy Fish Catch Conditions

We project QL’s Marine Products Manufacturing (MPM) segment to record PBT growth of 20% yoy in FY20 off a higher production output of 6% yoy amid higher capacity and a full-year recovery in fish catch. With a better product mix from higher volumes (+15% yoy) of prawns and surimi-based products, this should also lead to improved PBT margins.

ILF Businesses Likely to Benefit From Recovering Egg Prices

We believe a recovery in local egg prices (+16% Ytd) over FY20 should offset weaker poultry prices (-12% Ytd), which are more susceptible to fluctuations but nonetheless contribute less to the Integrated Livestock Farming (ILF) segment’s earnings. All in, we still expect the segment’s PBT to grow 7% yoy off a higher production, stabilising ASPs as well as the absence of an earnings drag from Family Mart operations in FY20.

POA Weakness Still Lingering Due to Depressed CPO Prices

As CPO prices have remain depressed Ytd (-13% yoy), we expect the Palm Oil Activities (POA) segment to be subdued in FY20 as a result. However, this should be offset by a better maturity profile for QL’s Indonesian plantations (+3% higher matured hectarage), as well as a positive outlook for its Boilermech associate.

Family Mart: Quicker-than-expected Outlet Expansion

Management has guided for 170 Family Mart stores by end-FY20, which implies a quicker rate of store openings than our previous assumption of 70 stores/year. We believe this trajectory could be sustained until FY21E, with QL’s first central kitchen being able to serve 250 stores.

Maintain BUY

We lower the FY20-22E earnings by 8-10% to factor in a slower recovery of CPO prices and higher effective tax rates. Nonetheless, QL’s longterm growth prospects remain sound, driven by its steadily expanding upstream businesses alongside Family Mart’s rapid store expansion. Maintain BUY, with an unchanged SOTP-derived FY20E TP of RM8.00.

Source: Affin Hwang Research - 31 Jul 2019