QL's FY24 results met expectations. Its FY24 core net profit rose 26% YoY driven by improved performance across all segments. Its prospects will remain strong underpinned by growing demand for its marine and poultry products and expansion of its convenience store chain. We maintained our forecasts, TP of RM6.25 and MARKET PERFORM call.

Its FY24 net profit met both our forecast and the consensus estimate. It declared a dividend of 6.5 sen which missed our forecast of 9 sen.

YoY, its FY24 revenue rose 7% driven by robust performance in several key segments. The marine product manufacturing (MPM) segment climbed 3% thanks to better performance of fishmeal and surimi-based products contributed by higher export price. The palm oil and clean energy (POCE) segment grew 13% attributed to heightened project progress in BM GreenTech. Its convenient store chain (CVS) segment expanded 26% mainly due to the opening of 38 new stores (to 395), additional FM Mini set-up and intensified marketing efforts. Its integrated livestock farming (ILF) segment’s turnover also improved by 2% thanks to higher sales volume albeit at a lower unit price.

Its net profit rose by a steeper 26% 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, (iii) better trading margins for feed raw materials and (iv) improved CVS segment’s performance, thanks to higher sales and margin normalisation from store operational efficiency.

QoQ, its turnover eased 2% due to seasonally weaker sales at its MPM and CVS segments, partially cushioned by an addition of 10 stores and 13 FM Mini at the CVS segment and better showing from the POCE segment (due to higher project progress) and the ILF segment (improved farm produce selling prices in Indonesia).

Outlook. QL's growth trajectory remains stable, supported by various segments. The ILF and MPM segments are expected to sustain earnings through steady demand, cost subsidies, and lower surimi input costs. Additionally, the POCE segment's focus on clean energy initiatives via BMGREEN (UP; TP: RM1.15) will drive growth. Consumer confidence is expected to improve with the new civil servant wage structure. The group aims to open 60-90 new stores (in line with our 75 new store target) by the end of FY25, focusing on the East Coast region, and remains committed to the long-term target of 600 outlets by 2027.

Forecasts. We maintain our FY25F forecasts and introduce our FY26F numbers.

Valuations. We also keep our DCF-derived TP at RM6.25 (WACC: 5.8% 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).

Investment case. 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. Maintain MARKET PERFORM rating.

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 - 31 May 2024