We foresee further headroom for stronger earnings growth momentum for QL Resources. On top of the steady growth led by the group’s key businesses (MPM and ILF), QL’s prospects are further reinforced by its burgeoning Family Mart operations as well as its POA division (fuelled by higher CPO prices). We lift FY20-22E earnings forecasts by 2-4%, largely to take into account higher revenue/store for its CVS operations and higher CPO ASP. We reiterate our BUY rating based on a higher SOTP-derived TP of RM9.30. QL Resources remains our top pick in the consumer space.

CVS: A Class Above the Rest

Family Mart’s current store count totalled at c.160 as at end-2019, well ontrack of management’s target of 300 stores by FY22. Notwithstanding the increasing store count, we gather that Family Mart generates classleading average revenue/store as compared to its peers, thanks to its higher focus on F&B / Ready-to-eat (RTE) products.

POA: CPO Price Uptrend a Major Boost

Elsewhere, CPO prices have been on an uptrend on the back of anticipated higher demand for palm-oil products as compared to production. We lift our CPO ASP assumption to RM2,500-RM2,600/MT for FY21/22E (from RM2,300-RM2,400).

MPM & ILF: Remains Key Earnings Driver

We expect MPM growth to remain sturdy moving forward mainly driven by a continued ramp up in production of chilled & frozen surimi-based products. For the ILF segment, we foresee brighter prospects on the back of higher egg production (from 5.7m to 7.8m eggs/day within the next 3 years) whilst further supported by favourable egg prices.

Reiterate BUY With a Higher TP of RM9.30

We raise our earnings by 2-4% for FY20-22E, largely to factor in higher revenue per store for CVS operations as well as a higher CPO ASP assumption for the POA segment. Post revision, we arrive at a higher SOTP-derived 12-month TP of RM9.30. While this implies a hefty forward PER of 52x FY21E EPS, we believe the higher valuation is warranted given QL’s sustainable long-term earnings momentum, in our view. On top of a resilient growth from core defensive MPM and ILF businesses, QL’s earnings prospects are further supplemented by both its CVS and POA segments. Hence, we reiterate our BUY rating on the stock.

Source: Affin Hwang Research - 13 Feb 2020