Kenanga Research & Investment

QL Resources - Treasures From Land and Sea

Publish date: Thu, 30 Nov 2023, 10:24 AM

QL’s 1HFY24 results exceed expectations, driven by strong margins and improved efficiency. Its earnings growth will be driven by its marine products, convenient store chain, and poultry businesses in Indonesia and Vietnam. We raise our FY24-25F net profit forecasts by 6% and 7%, respectively, fine-tune up our TP by 1% to RM5.95 (from RM5.90) and upgrade our call to OUTPERFORM from MARKET PERFORM.

QL’s 1HFY24 net profit came in above expectations at 58% and 60% of our full-year forecast and the full-year consensus estimate, respectively. The variances against our forecast came largely from better-thanexpected margins and operational efficiency. No dividend was declared during the 2QFY as expected. For the full financial year, we expect the group to declare a 9.0 sen dividend, translated into a dividend payout ratio of 47%, similar to the previous year.

YoY, QL's revenue rose 4% driven by robust performance in several key segments. The Marine Product Manufacturing (MPM) segment saw a 4% rise to RM710m, thanks to improved fish landings. The Palm Oil and Clean Energy (POCE) segment grew 19% attributed to heightened project progress in BM GreenTech. Additionally, the Convenient Store Chain (CVS) segment expanded 25% mainly due to the opening of 60 new stores (to 379), additional FM Mini set-up and intensified marketing efforts. However, this overall growth was somewhat offset by a 3% decrease in the Integrated Livestock Farming (ILF) segment, which dropped to RM1.7b, largely due to lower ASP for feed raw materials.

Its EBIT, meanwhile, rose 31% with the margin improving by 220bps to 10.5%, thanks to (i) stronger margins in fishmeal and surimi-based products from a robust USD, (ii) higher sales and improved project margins in the POCE segment, and (iii) better trading margins for feed raw materials. However, these gains were partially offset by lower margins in the CVS segment due to higher labour and energy costs.

QoQ, the group's turnover grew by 6% due to better performance across all segments. PBT surged 30%, fuelled by robust fish landings and higher fishmeal ASP in the MPM segment, increased sales and yields in POCE, improved ILF operations in Malaysia, Indonesia, and Vietnam, and stronger CSV results from higher sales and better operational margins. These factors collectively contributed to a record net profit of RM123m, a notable 32% rise.

Forecasts. We raise our FY24F-25F net profit forecasts by 6% and 7%, respectively, to reflect higher margin assumptions.

Correspondently, we raise our DCF-derived TP marginally to RM5.95 (WACC: 5.8% and TG: 2%) from RM5.90 previously. 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 consistent high export demand for its marine products, supported by robust fish landings and decreasing input costs, (ii) the high growth potential of its Family Mart convenience store franchise, highlighted by its popular Japanese-themed products and continued expansion, including the new Family Mart Mini outlets targeting petrol stations and highways, and (iii) it growing poultry business in Indonesia and Vietnam, driven by increasing protein consumption as living standards rise. Value has emerged after the recent weakness in its share price. Upgrade to OUTPERFORM from MARKET PERFORM.

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 strengthening against the USD.

Source: Kenanga Research - 30 Nov 2023

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