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NEUTRAL, new TP of MYR5.31 from MYR4.92, 5% upside with c.1% FY23F (Mar) yield. QL Resources’ 1QFY23 results beat expectations, due to a stronger-than-expected performance from its integrated livestock farming (ILF) segment. We believe the company will be able to sustain its earnings recovery following the broader reopening of the economy, on the back of a better containment of COVID-19 infections, thanks to its strong market position and diversified business model. That said, its rich valuation may have reflected the solid fundamentals and defensive attributes.
QL’s 1QFY23 results are above expectations. Net profit of MYR82m (+95% YoY) met 30-31% of our and consensus full-year estimates, on stronger-than-expected ILF earnings – which, in turn, were due to favourable product ASPs in Vietnam. Post results, we raise FY23-25F earnings by 11%, 5% and 4% and our SOP-derived TP to MYR5.31. Our TP also includes an ESG premium of 2%, and implies 43x FY23F P/E, which is close to the stock’s 5-year mean.
Results review. 1QFY23 sales surged 24% YoY to MYR1.5bn, with all key operating divisions’ contributions pointing to encouraging growth following the broader economic reopening. This, in turn, facilitated the resumption of business operations and the normalisation of consumption. 1QFY23 PBT jumped 78% YoY to MYR108m, largely boosted by a sharp rebound in ILF earnings on the back of favourable farm prices and higher raw material trading prices. The marine product manufacturing (MPM) division also recorded a 20% YoY growth, thanks to the full resumption of fishing activities and improved product pricing. QoQ, 1QFY23 sales rose by 11%, again supported by the strong ILF performance whilst MPM and the convenience store (CVS) segments also booked robust numbers. Correspondingly, 1QFY23 core net profit grew 19% QoQ to a record high of MYR82m.
Outlook. The strong earnings momentum should be sustained into 2QFY23F – there will be more favourable seasonal factors affecting the MPM business, while ILF product prices have stayed elevated in key markets. That said, we highlight the risk of the strong ILF earnings tapering off in 2HFY23F, taking into account the cyclicality and price volatility of the poultry industry. On the other hand, the CVS division should continue to grow, on the back of its FamilyMart network expansion and the recovery in footfall, in tandem with the broader economic reopening. All these factors should underpin its earnings growth in FY23 – which we forecast at 39%.
Downside risks to our recommendation include the prolonged lockdown in operating countries and a sharp hike in commodity prices. The reverse of these circumstances would present upside risks.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....