KEY INVESTMENT HIGHLIGHTS

• 1QFY21 earnings of RM50.9m was in-line with our expectation

• 1QFY21 net profit of RM50.9m was a marginal improvement

• Marine product likely to continue to drive bottomline growth while the livestock farming segment should stabilise

• Maintain NEUTRAL with an unchanged TP RM9.21

1QFY21 earnings of RM50.9m was within our and consensus’ expectations. QL Resources Berhad’s (QL) 1QFY21 net profit made up 17.1% of ours and 18.7% of consensus’ full year estimates. Usually Q2 and Q3 are seasonally stronger. No dividend was announced during the quarter, which is within expectation.

1QFY21 net profit of RM50.9m was a marginal improvement yoy although revenue slipped by -2.3%yoy to RM970.2m. During the quarter, its marine product manufacturing (MPM) continues to drive pre-tax profit (PBT), which is up by +31.7%yoy to RM61.9m. This comes on the back of sales that increased by +8%yoy due to good fish landing and high sales volume of fishmeal and surimi based products. The larger economies of scale has also translated into better profitability. The Palm Oil Activities (POA) segment overtook the integrated livestock farming (ILF) to be the second highest PBT contributing segment at RM14.5m as compared to RM4.1m raked in by the ILF segment. This can be attributed to improvement in crude palm oil prices and foreign exchange translate gains due to the strengthening of Indonesian Rupiah. Meanwhile, PBT for the ILF segment was softer by 71.2%yoy due to lower ASPs for farm produce during the period, resulting in margin compression. Due to the movement control order (MCO), the ILF segment was also adversely affected due to sluggish sales at its Family Mart stores and lower volume of raw material traded. Compared to the preceding quarter, revenue was marginally lower while net profit improved by 18.4%.

Marine product likely to continue to drive bottomline growth while the livestock farming segment should stabilise. We expect the MPM segment to continue to drive bottom growth while the ILF segment should stabilise due to improving ASPs. Topping that is the recovery in sales for Family Mart as we think that business are likely to improve as consumers get out of their homes

Source: MIDF Research - 27 Aug 2020