INVESTMENT HIGHLIGHTS

• 4QFY19 revenue rose by +14.5%yoy premised on the strong growth of the MPM segment

• This, however, was subdued by the poor performance from the ILF which PBT dropped -28.3%yoy

• In addition, earnings was also dragged by a higher effective tax rate of 26.4%

• Maintain NEUTRAL with a revised TP of RM7.06

Earnings dragged by higher tax expense. QL Resources Berhad (QL)’s 4QFY19 earnings came in at RM43.2m (+11.3%yoy). This bring its cumulative full year FY19 earnings to RM216.7m (+11.2%yoy) which lagged ours but met consensus expectations, both accounting for 88.0% and 94.9% of full year FY19 earnings forecasts respectively. The strong 4QFY19 revenue growth of +14.5%yoy was driven by the

Marine Product Manufacturing (MPM) segment. However, the solid performance MPM segment was partially dragged by a lower PBT contribution from Integrated Livestock Farming (ILF) segment. In addition, the overall earnings was further impacted by a higher effective tax rate at 26.4% (vs 4QFY18 of 17.6%).

MPM record a strong performance. QL’s biggest earnings contributor, the MPM segment, recorded a strong 4QFY19 revenue and PBT growth of +18.4%yoy and +45.0%yoy respectively. The strong topline performance was mainly due to the: (i) higher sales volume of surimi-based products and; (iiii) weaker Ringgit against USD at an average of RM4.08/USD (vs Q4FY18 of RM3.86/USD). A higher fish catch cycle during the quarter ensures a steady fish supply. As cost of fish accounts for 60.0% of the cost of producing surimi, interruption of fish supply could drive up cost.

ILF segment’ recorded a lower PBT. ILF segment registered a 4QFY19 revenue growth of +18.1%yoy due to the recovery in egg prices which average at 39.0sen per egg in the 4QFY19 (vs an average of 32.6sen in the 4QFY18). This resulted in a higher contribution from the Peninsular poultry units. Nonetheless, PBT decreased by - 28.3%yoy resulting from profit margin compression in its feed raw material trade. Note that the group incurred higher input cost of corn and soybean meal which is further exacerbated by the weaker Ringgit.

Source: MIDF Research - 31 May 2019