QL’s FY23 results met expectations. Most of its major segments benefited from the reopening of economies and were able to raise prices to pass on cost inflation. Its convenience store (CVS) division added 76 new stores, translating to a 26% growth in terms of store count. We moderate our FY24F earnings forecast by 6% and TP by 5% to RM6.29 (from RM6.66) but maintain our OUTPERFORM call.

FY23 core net profit met both our forecast and the consensus estimate. It declared a dividend of 7.0 sen that tops our forecast of 6.0 sen.

YoY, revenue grew 19% YoY driven largely by strong performance from its marine products division (+ 15%, partly contributed by the resumption of exports to China) and poultry business (+24%). Its CVS operations jumped 36% on account of higher stores. EBITDA improved by a stronger 31% thanks to: (i) improved selling prices (for marine products), and (ii) improved egg prices in both Malaysia (partly due to government subsidies) and operational efficiency in both its Indonesia and Vietnam farming operations.

With the exception of oil palm plantation, all other operations showed improvement, with marine products driven by higher volume (as operations normalised) and a 10% increase in ASP (aided by stronger USD), while its convenience store division was boosted by the addition of 76 new stores (from 290 as at end of FY22). Its poultry business was bolstered by higher prices for eggs and feed meals, higher volumes for feed meals and prices for feed meals sold and government subsidies. CVS operations saw its average sales/store jumping by 20% to RM7.2k per store per day with a PBT margin of 5% (which was a tad lower than our assumptions of RM8k per store per day and PBT margin of 7%).

Forecasts. We cut our FY24F earnings forecast by 6% to be more in line with sales per store per day and PBT margin achieved in FY23 at its CVS operations.

Correspondingly we lower our DCF-derived TP by 5% to RM6.29 (WACC: 5.2% and TG: 2%) from RM6.66). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintained at OUTPERFORM.

We like QL for: (i) the sustained strong export demand for its marine products as exports normalised post pandemic (ii) its strong Family Mart convenience store franchise given its appealing Japanese-themed products and continued outlet expansion including Family Mart Mini targeting petrol stations and highways, and (iii) the strong growth potential of its poultry business in Indonesia and Vietnam on increased protein content in diet as living standards improve with prices looking stable (and likely to increase in Indonesia).

Risks to our call include: (i) higher-than-expected inflationary pressure, (ii) aggressive monsoon season, (iii) changes in fishing regulations, and (iv) a weaker USD.

Source: Kenanga Research - 31 May 2023