• Maintain NEUTRAL, new TP of MYR5.64 from MYR5.81, 1% upside with c.1% FY24F (Mar) yield. QL Resources’ FY23 results are in line, due to the strong showing from its anchor marine product manufacturing (MPM) and integrated lifestock farming (ILF) segments. Notwithstanding the muted FY24F earnings growth from the elevated base, we believe QL’s solid fundamentals and continuous capacity expansion of its scalable business should underpin the sustainability of its long-term growth. Such defensive attributes should continue to support the rich valuation, in our view.

• FY23 results are in line. Net profit of MYR347m (+60% YoY) accounts for 99% and 101% of ours and consensus’ forecasts. Post-results, we make minor tweaks to our FY24-25F earnings, after updating the full-year numbers. We also introduce FY26F numbers (earnings growth of 7% YoY) in this report. Correspondingly, our SOP-derived TP drops to MYR5.64 (with a 2% ESG premium), which implies 40x P/E FY24F – this is in line with the valuation ascribed to its large-cap consumer peers under our coverage.

• Results review. YoY, FY23 revenue jumped 19% to MYR6.3bn, thanks to healthy growth across all operating divisions. ILF chalked the biggest growth, on favourable product ASPs and the recovery in consumption post re-opening of key operating markets. FY23 PBT surged 50% YoY to MYR481m, with MPM continuing to chart steady growth. 4QFY23 revenue contracted by 10% QoQ to MYR1.5bn, with both MPM and ILF units reporting lower numbers due to seasonal factors and lower product ASPs respectively. Correspondingly, 4QFY23 net profit fell 25% QoQ to MYR73m.

• Outlook. Whilst we expect QL’s earnings to remain resilient – underpinned by its diversified business model – it may not be able to book positive FY24F earnings growth, due to the high base of FY23. The strong earnings in the volatile ILF business may taper off with supply-demand dynamics becoming more balanced. Meanwhile, the convenience store or CVS division is bracing for the headwinds in the form of opex hikes and softer consumer spending. That said, the MPM wing’s continuous capacity expansion should allow QL to capture the robust global demand for surimi-based products. 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.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 31 May 2023