FY22 earnings came in line with top-line posting stellar improvement coming from all segments with the exception of the MPM segment. On a positive note, margins saw stability from the previous quarter offsetting the poor PBT margins in 1HFY22 due to the pandemic. As the economy reopens and barring further pandemic woes, we expect sustained growth ahead with margins normalising. TP is raised to RM5.45 but maintain MARKET PERFORM rating on concerns of prolonged elevated inputs costs.

In line. FY22 PATAMI of RM218m came in within our expectations accounting for 101%/103% of our/consensus estimates. A final single tier DPS of 3.5 sen was declared (in line).

YoY, FY22 revenue showed a strong 20% uptick to RM5.25b underpinned by strong all-round performances with the exception of MPM which slumped 7% - lower sales volumes caused by low fish landing cycle and shortage of foreign fishing crew especially in 1HFY22. POCE showed strong top-line (>100%) on account of full-year consolidation of BoilerMech coupled with strong CPO selling prices. IFL reported stronger sales (+20%) due to higher farm produce selling price and feed raw material trading price while its Family Mart operations (CVS) saw 31% uptick in sales coming from an additional 41 outlets and normalization of operating hours. Stripping of the one-off remeasurement gain of RM79m, PBT fell 8% to RM400m. PBT margin saw 3.7ppt erosion on account of all segments with the exception of CVS (+4.1ppt). Stripping off the measurement gain, POCE PBT margin would have been 19%. No Cukai Makmur was booked but ETR at 27% saw PATAMI declining by 30% to RM217m.

QoQ, 4QFY22 revenue was soft, falling 2% to RM1.37b as historically its 4Q is its weakest quarter on account of the monsoon. On a positive note, PBT margins remained stable at 7%. While most segments saw erosion in PBT margins, IFL saw improvement by 3.3ppt on account of higher volume and recovery in selling prices coupled with Malaysia’s cost subsidy programme (Feb to June 2022). Aided by a lower ETR (24%) PATAMI ended 16% higher to RM69m.

Margins to normalise. We are positive on QL’s to sustain growth in FY23 given the unlikelihood of MPM activities to be affected by pandemic – as in 1HFY22 – with the normalization of the economy benefitting further its IFL and CVS segments. Notwithstanding the persistent elevated input prices and volatile supply issue, we expect margins to normalise ahead (at FY22 levels) but unlikely reaching its pre-pandemic level.

Post results, we make no changes to our FY23E earnings as our margins assumptions are in line with FY22 margins and introduce our FY24E earnings where we expect sustained growth but remain conservative on margins.

Reiterate MARKET PERFORM. TP is raised to RM5.45 (from RM5.05) pegged to its FY23E PER of 49.4 (45.9x previously) in line with its 5-year mean which we feel is justified given its historical resiliency and robust earnings coupled with exciting growth potential from diversified revenue streams. However, volatile commodities prices and supply chains are still concerns; thus, we maintained it at MARKET PERFORM.

Risk to our call: (i) worse-than-expected sales from MPM, IFL segments, (ii) margins squeeze on prolonged impact of inputs prices.

Source: Kenanga Research - 31 May 2022