INVESTMENT HIGHLIGHTS

• 3QFY19 earnings rose by +16.3%yoy to RM69.1m, premised on the strong growth of the MPM segment

• This, however, was partially subdued by the poor performance from the poultry farming and POA segments

• Aggressive expansion plan in-store for FamilyMart to achieve the ultimate goal of opening 300 stores by FY22

• Maintain NEUTRAL with an unchanged TP of RM7.35

Earnings within expectations. QL Resources Berhad (QL)’s 3QFY19 earnings came in at RM69.1m, an increase of +16.3%yoy. This bring its cumulative 9MFY19 earnings to RM173.5m (+11.1%yoy) which is within ours and consensus expectations, both accounting for 70.5% and 75.7% of full year FY19 earnings forecasts respectively. The solid earnings growth during the quarter was driven by the stronger earnings from the Marine Product Manufacturing (MPM) segment.

MPM segment continue to record strong performance. QL’s biggest earnings contributor, the MPM segment recorded a strong 3QFY19 PBT growth of +31.6%yoy. The strong performance was mainly due to the: (i) higher sales volume of surimi-based products resulting from the production ramp-up of the new chilled surimi-based product plants in Hutan Melintang and; (ii) higher contribution from prawn aquaculture in Kudat, Sabah as the unit recover from the prawn disease outbreak in the last two years.

Weaker poultry contribution dragged ILF segment’s PBT. The ILF segment’s 3QFY19 PBT rose by +6.8%yoy mainly attributable to the higher sales volume achieved from trading of raw feed material. However, despite the better margin from the trade, overall PBT was dragged by weaker contribution from poultry farming unit. Meanwhile, POA segment recorded a dropped in PBT of -7.0%yoy mainly due to a drop in CPO price by -26.1%yoy (3QFY19:RM1,916 vs 3QFY18: RM2,592). We expect the outlook for POA segments will continue to be challenging in the near term.

Rapid expansion of FamilyMart’s operation. QL has opened 83 FamilyMart stores after about two years in operation since the opening of its 1st store in November 2016. Currently, the group is focusing on opening stores in Johor with three stores thus far.

Source: MIDF Research - 1 Mar 2019