QL Resources’ FY20 core net profit of RM239.3m (+10.4% yoy) came in line with our and consensus expectations. The MPM division continued to see strong demand from both domestic and export markets whereas the ILF division was lifted by regional poultry operations, coupled with CVS contribution. In view of the gradual and earlier-than-expected relaxation of out-of-home channels, we lift our FY21-22 earnings forecasts by 2.8-6.7%, anticipating higher overall demand in QL’s key divisions going forward. Maintain BUY with a higher SOTP-derived 12-month TP of RM10.50. The proposed 1-2 bonus issue should improve liquidity of the stock.

Core Net Profit in Line at RM239.3m

QL posted robust FY20 revenue of RM4.15bn (+14.7% yoy), driven by the Marine Products Manufacturing (MPM) (15.7% yoy) and Integrated Livestock Farming (ILF) (18.3% yoy) segments, albeit slightly offset by the Palm Oil Activities (POA) segment (-15.6% yoy). MPM saw higher contribution from its surimi and surimi-based products owing to sturdy demand from both domestic and export markets. ILF also reported a strong top-line growth, attributed to higher contribution from regional & Sabah poultry operations as well as CVS operations (parked under ILF). All in all, core net profit came in at RM239.3m (+10.4% yoy), which was within both our and consensus expectations.

Slight Blip Expected, But Long-term Prospects Remain Solid

Sequentially, revenue and core earnings fell 11.6% and 43.6%, to RM979.4m and RM43m respectively. This was due in part to seasonal factors which typically affect the MPM segment in 4Q while ILF was affected by lower farm produced prices. We foresee a slight blip in the following quarter as the ILF (and CVS) segments are seen to be most affected on weakened demand amidst lockdown measures. Nonetheless, looking past 2020, growth prospects remain solid, underpinned by sturdy demand for surimi and surimi-based products in both domestic and export markets while ILF and CVS remain on a solid growth trajectory.

Proposed 1 for 2 Bonus Issue

In conjunction with QL’s 20 years of listing on Bursa Malaysia, the group has proposed to undertake a bonus issue of up to 811.2m new shares on the basis of 1 bonus share for every 2 existing shares held. This will increase QL’s current share base from 1.62bn to 2.43bn shares, which should further enchance the liquidity of the stock. In addition, a dividend of 4.5 sen was proposed for FY20 (FY19: 4.5sen)

Source: Affin Hwang Research - 30 Jun 2020