INVESTMENT HIGHLIGHTS

• 4QFY17 earnings rose by +23.9%yoy to RM47.2m meeting our and consensus expectations

• Marine product manufacturing (MPM) on a declining trend

• Growth in Integrated livestock farming (ILF)’s earnings

• Palm oil activities (POA) division continues upward trajectory

• Reaffirm NEUTRAL stance with unchanged TP of RM4.62 based on PER18 and EPS18 of 26x and 17.8sen respectively

Met our and consensus expectations. QL’s 4QFY17 earnings rose by +23.9%yoy to RM47.2m, whilst full year FY17 earnings rose by a modest +2.0%yoy to RM195.9m. The full year FY17 earnings met our and consensus expectations, accounting for 98.1% and 98.6% of full year earnings forecasts respectively.

Marine product manufacturing (MPM) on a declining trend. MPM’s 4QFY17 revenue decreased marginally by -0.2%yoy. However, PBT for the segment significantly decreased by -36.4%yoy. This represents a PBT margin of 11.4%, a decline of -6.5ppts yoy. The subdued performance of the MPM divisions was due to the lower contribution from surimi and fishmeal operations as overall lower fish catch in comparison to the corresponding quarter.

Integrated livestock farming (ILF)’s earnings grew. ILF’s 4QFY17 revenue increased by a modest +2.4%yoy. The segment’s PBT however, grew by +133.1%yoy. As a result, margin improved +2.9ppts yoy to 5.1%. The improvement in PBT was due: (i) to a better contribution from the Vietnam poultry and Indonesian feed mill unit; (ii) major egg price correction in Q3 and Q4 in Peninsular market and; (iii) gain on disposal of investment properties in Q4. These factors are mitigated by the continuous poor farm productivity of Indonesian poultry units.

Palm oil activities (POA) division continues upward trajectory. POA’s 4QFY17 revenue increased significantly by +45.2%yoy. The segment’s PBT recorded a significant growth to RM11.9m from RM0.3m in the corresponding quarter. The PBT margin recorded an increase of +11.0ppts to 11.4%. The significant increase in performance is due to the higher contribution from both Indonesian and Sabah units’ oil palm operations from higher volume of FFB produced and processed coupled with higher CPO price.

Prospects. We believe that QL will continue to report satisfactory performance in the next quarter despite the subdued performance of the MPM segment as it is well mitigated by the recovery of ILF and POA segment in the near term.

Reaffirm NEUTRAL stance with unchanged TP of RM4.62. We are maintaining our NEUTRAL call on QL with unchanged TP of RM4.62 per share. Our target price is based on a PER18 and EPS18 of 26x and 17.8sen respectively. The PER is based on the historical average PER in the past three years from 2014.

Source: MIDF Research - 30 May 2017