QL 1QFY24 results met expectations. Its 1QFY24 core net profit rose 13% YoY on stronger demand and higher prices for its key products. Its convenience store (CVS) operation added 131 new outlets (+41% YoY) but earnings were hit by higher labour and energy costs. We maintained our forecasts, TP of RM6.29 and OUTPERFORM call.

Its 1QFY24 core net profit met expectations at 23% and 24% of our full year forecast and the full-year consensus estimate, respectively. No dividend was declared during 1Q as expected.

YoY, its revenue grew 5% YoY driven largely by strong performance from its palm oil activities (+ 24%) and CVS operation (+27%). Its EBITDA improved by a stronger 20% thanks to: (i) improved selling prices (for marine products and lower inputs costs), and (ii) improved egg prices in both Indonesia and Vietnam amid tight supply with Malaysia’s egg production supported by government subsidies.

All operations showed improvement. Marine products were driven by good fishing in the new season with fishmeal seeing higher volume and prices on account of supply constraints from Peru. Poultry business was bolstered by: (i) sustained exports and better egg prices, and (ii) better performance from its broiler division with a turnaround in Indonesia. Its upstream palm oil division reported better output and yields, partially offset by lower CPO prices. Its CVS operation was buoyed by an addition of 73 new stores and 41 mini stores, but earnings were hit by higher labour and energy costs.

Forecasts. Maintained.

We also keep our DCF-derived TP of RM6.29 (WACC: 5.5% and TG: 2%). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like QL for: (i) the sustained strong export demand for its marine products as demand improved on tight supply, (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 along with prices on higher demand from Indonesia and Vietnam. Maintained at OUTPERFORM.

Risks to our call include: (i) inability of pass on cost inflation, (ii) rough aggressive monsoon seasons, (iii) changes in fishing regulations, and (iv) MYR’s strength against the USD.

Source: Kenanga Research - 30 Aug 2023