Result

• QL Resources reported 3QFY17 net profit of RM56mil, up 10.9% q-o-q while dropped 3.1% y-o y. Meanwhile, revenue stood at RM799.1mil, increased 9.5% q-o-q and 8.3% y-o-y.

• For 9MFY17, net earnings were recorded at RM148.7mil, declined by 3.4% y-o-y. However, 9MFY17 revenue of RM2198.3mil was 5.5% higher than a year ago.

• Within expectations. The Group’s 9MFY17 net profit was within our and consensus expectations, accounting for 77% and 71% respectively thanks to impressive performance posted by Palm Oil Activities (POA) division.

Comment

• A strong quarter. The Group’s net profit in 3QFY17 surged 10.9% q-o-q mainly due to astonishing performance for its Palm Oil Activities (POA) division and Marine Product Manufacturing (MPM) division, despite lower earnings contribution from Integrated Livestock Farming (ILF) division. Overall, the Group’s recorded higher topline growth of 9.5% q-o-q.

• Stronger topline and bottomline for Marine Product Manufacturing (MPM) MPM division on quarterly basis. MPM’s sales in 3QFY17 managed to post a positive growth q-o-q due to seasonal factors. Thus, its PBT surged by 17.6% q-o-q. However, MPM’s revenue for 3QFY17 recorded a slight decline y-o-y given its PBT lowered by 6.8% as compared to a year ago mainly due to overall lower contribution from surimi operations.

• Integrated Livestock Farming (ILF) division failed to perform on quarterly basis. Revenue of ILF division for 3QFY17 posted a positive growth buoyed by the higher volume of raw materials traded. However, the lower contributions from Indonesian and Peninsular poultry farms operation dented the ILF’s PBT, which decreased by 32.4% q-o-q and 15% y-o-y.

• Meanwhile, 9MFY17 earnings for ILF increased by 5.5% y o-y in line with its topline growth of 5.8% y-o-y mainly attributed by improved margin from feed raw material trade.

• Surprise jump in Palm Oil Activities (POA) division. PBT of POA division in 9MFY17 increased by 38.6% y-o-y due to higher CPO price (RM2867 vs RM2094) as well as higher contribution from Indonesian unit’s oil palm operations. Similarly, for 3QFY17, POA division posted an impressive growth for both topline and bottomline as compared to 3QFY16 mainly due to the same reason above. Besides, on q-o-q basis, POA’s PBT in 3QFY17 surged 236.8% q-o-q supported by higher contribution from Indonesia plantation unit amid stronger revenue which stood at RM89.9mil.
   

Earnings Outlook/Revision

• We maintain our earnings forecast for FY17-18F.

Valuation & Recommendation

• Maintain HOLD call on QL with an unchanged target price of RM4.53. Our valuation is pegged at 24.5x FY2018F PE based on EPS of 18.5 sen.

• While we like the Group for its on-going regional expansion and defensive business nature as its products are largely staple food-based, we reckon that the share price could offer limited upside as current valuation looks steep.

Source: JF Apex Securities Research - 1 Mar 2017