QL Resources’ 9MFY20 core net profit of RM196.4m (+13.2% yoy) came in line with our and street expectations. The robust performance was largely underpinned by its marine segment, driven by strong demand for its surimi-based products. The livestock segment saw better contribution from its regional and Sabah operations while palm oil activities remained subdued on a lower CPO ASP over the period. Reiterate BUY with an unchanged 12- month TP of RM9.30.

Core Net Profit at RM196.4m; Within Expectations

QL posted a 9MFY20 revenue of RM2.72bn (+17% yoy), underpinned by higher contribution from the Marine Products Manufacturing (MPM) (+16% yoy) and Integrated Livestock Farming (ILF) (+21% yoy) segments though this was slightly offset by Palm Oil Activities (POA) (-17% yoy) due to the lower FFB production and lower CPO ASP. MPM’s steady growth momentum continued over the period as demand for its surimi-based products remained resilient. ILF saw a surge in revenue riding on robust growth in CVS operations (parked under ILF) on top of better contribution from its regional and Sabah poultry operations. Overall, core net profit came in at RM196.4m (+13.2% yoy), which was within our and consensus expectations, accounting for 78% of the respective forecasts.

CVS Operations Likely to be Segmented Out in 4QFY20

Looking ahead, we expect the group’s key MPM and ILF businesses to continue to flourish as demand for surimi-based products (MPM) and affordable sources of protein such as eggs and broiler (ILF) is expected to remain resilient in tandem with the growing population and rising average consumption. We gather that the group’s Family Mart (CVS) operations (currently parked under ILF) will likely be segmented out by 4QFY20, which should provide further visibility to investors. We expect CVS’ contribution to group earnings to be sizable going forward.

Maintain BUY With An Unchanged TP of RM9.30

We make no changes to our earnings estimates, as the results are broadly in line. We continue to favour QL for its solid long-term growth prospects, driven by the robust growth momentum of its CVS operations on top of the group’s core defensive MPM and ILF segments. We reiterate our BUY rating on QL with an unchanged SOTP-derived TP of RM9.30. Downside risks include: i) disruptions in the Family Mart expansion plans; ii) deterioration in fish catch conditions; and iii) a decline in poultry prices.

Source: Affin Hwang Research - 28 Feb 2020