QL’s FY21 earnings came in within our/market estimates (after stripping off a one-off re-measurement gain). Overall top-line remained robust given its diversified revenue sources. The consolidation of Boilermech is expected to solidify its Palm Oil activities with both Marine Product Manufacturing and Integrated Livestock Farming activities expected to be robust post-pandemic on pent-up demand. Upgraded to OUTPERFORM with a higher TP of RM6.90.

In line. FY21 CNP of RM311 accounts for 115%/119% of our/market estimates due to a one-off RM79m re-measurement gain (due to re- measurement of its previously held equity interest in Boilermech which is now a subsidiary). Stripping off the gains, earnings would be in line with our/market estimates at 97%/100%. DPS of 3.5 sen declared is below our expectation of 5.5 sen.

YoY, FY21 revenue improved 5% to RM4.2bn underpinned by 22% surge from POA (Palm Oil Activities) to RM313m given the consolidation of Boilermech as a subsidiary in the 4th quarter. Marine Product Manufacturing (MPM) saw a 9% improvement to RM1.26b mitigated by shortage of fishing crew with the imposition of the MCO. Integrated Livestock Farming (ILF) saw moderate 2% increase due to higher unit selling price and higher egg production. PBT surged 40% on better margins from MPM (+4ppt to 21%) due to cost efficiency while POA’s surge (+25ppt to 28%) was due to the one-off re-measurement. With no significant change in ETR, CNP saw a 30% jump to RM311m.

QoQ, saw 9% improvement in top-line underpinned by POA (+171%) coming from the consolidation of Boilermech sales, and offset by lower sales recorded for palm oil caused by adverse weather and labor shortage. ILF saw a moderate 4% jump in revenue due to higher unit selling price for raw material trading. Group PBT jumped by 35% due to the one-off re-measurement. With a lower ETR (-6ppt), CNP saw a 49% improvement to RM114m.

Outlook. The group’s earnings are anticipated to be mainly anchored by its MPM segment (historically taking up c.58% of group PBT), on the back of: (i) stable fish-cycle, coupled with (ii) persistently robust sales momentum especially from the frozen surimi-based products. We take comfort in the resiliency of the group’s anchor segment, as it has been largely unaffected by the Covid-19 outbreak. The consolidation of Boilermech should solidify its top-line ahead where we expect double- digit contribution to top-line. Meanwhile, we expect FamilyMart (under ILF) to see gradual improvements ahead, mainly underpinned by normalising retail footfalls post lockdown. The group is on track to meet its FY22 target of 300 locations, with c.212 stores opened to date. Hence, we reiterate our view that this segment will be an exciting avenue of growth, premised on its high-margin fresh food content products.

Post results, our FY22E NP is revised slightly up by 4% to RM310m on account of better PBT margins from both MPM and IFL with the gradual easing of lockdowns.

Upgrade to OUTPERFORM with a TP of RM6.90 (from RM6.60), based on an unchanged 54.0x FY22E PER, closely in-line with +1.0SD over its 3-year mean PER. While valuation appears rich at this level, we believe it is justified, premised on its resiliency and robust earnings growth expectations coming from diversified revenue streams.

Risk to our call: worse-than-expected MPM sales.

Source: Kenanga Research - 28 May 2021