• QL registered a 6MFY21 core net profit of RM121m (+0.6% yoy) largely aided by stronger margins particularly from the MPM segment despite a slightly softer total turnover of RM2.05bn (-0.9% yoy).
• MPM is likely to continue as the main driver of the group’s performance, with ILF and CVS likely to see some softness amid the reinstatement of the CMCO.
• No change to our earnings forecasts. We remain in favour of QL in view of its overall resilient business operations while its longer-term robust growth prospects remain intact. Maintain BUY with a 12-month TP of RM7.11* (TP before 1 for 2 bonus issue – RM10.7).

6MFY21 core net profit at RM121.0m (+0.6% yoy); within expectations

QL Resources posted a 6MFY21 revenue of RM2.05bn (-0.9% yoy), mainly dragged down by a subdued Integrated Livestock Farming (ILF) segment but cushioned by Marine Products Manufacturing (MPM). ILF declined on the back of the lockdown disruption which affected sales for animal feed raw material trading, farm produce prices in Peninsular Malaysia & Indonesia, as well as sales at Family Mart. Positively though, MPM continued to record stronger sales for its surimi and surimi-based products which offset the slump in ILF. Aided by larger economies of scale, MPM’s PBT margin grew 4.3ppt to 21.1% in 6MFY21 which in turn lifted the group’s PBT to RM177.7m (+21.3% yoy). Accounting for an effective tax rate of 28.7% (6MFY20: 18.6%), due to tax in relation to an unrealised Indonesian Rupiah FX gain, core net profit came in at RM121m (-0.6% yoy) – broadly within our and street expectations.

Sturdy MPM likely to shrug off softness in other segments

Sequentially, revenue grew 11% to RM1.08bn whilst PBT surged to RM97.3m (+21%), rebounding off the preceding quarter’s low base - particularly ILF’s PBT which grew c.6- fold on demand recovery for farm produce and Family Mart operations. For the quarter ahead, the reinstatement of the CMCO is expected to derail the recovery momentum especially for ILF (subdued eggs and poultry sales) and CVS (weaker footfall). However, we foresee MPM largely offsetting the blip in ILF and CVS, riding on sustained local and export demand, and backed by ample fish catch and expanded production capacity.

Maintain BUY

We made no changes to our earnings estimates as the results were in-line. We maintain our BUY rating with an unchanged SOTP-derived TP of RM7.11 (*post bonus share issuance). We still favour QL due to its defensive core businesses while its longer-term growth prospects are largely intact. Downside risks: i) disruptions in Family Mart expansion plans; ii) deterioration in fish catch conditions; and iii) decline in livestock prices.

Source: Affin Hwang Research - 30 Nov 2020