Review

• QL Resources Berhad (QL)’s 1QFY25 core earnings of RM107.4mn came in within expectations at 24% and 23% of our and consensus’ full-year forecasts, respectively.

• 1QFY25 revenue dropped by 3.3% QoQ to RM1.6bn, mainly due to weaker performance in the Integrated Livestock Farming (ILF) and Palm Oil and Clean Energy (POCE) segments. Despite the weaker topline, core net profit increased by 8.8% QoQ driven by i) improved margin (+3%-pts QoQ to 7.4%) of the ILF segment, and ii) higher average store sales in the Convenience Store Chain (CVS) segment.

• Cumulatively, core earnings rose by 15.8% YoY while quarterly revenue grew by 1.3% YoY.

• Marine Products Manufacturing (MPM) Segment. Segmental revenue decreased by 3.4% YoY to RM335.1mn, primarily due to lower sales for fishing, fishmeal and aquaculture activities. However, PBT saw a slight increase of 1.4% YoY to RM57.9mn, benefiting from cheaper raw material costs.

• POCE Segment. PBT margin expanded to 9.0% (+2.5%-pts YoY) thanks to i) improved margins in solar projects, and ii) higher CPO prices. Nevertheless, sales dropped by 10.1% YoY to RM157.7mn, mainly due to slower project recognition during Ramadan.

• ILF Segment. Revenue remained relatively flat at RM817.8mn, down 0.5% YoY, mainly due to lower ASP for feed raw material trading and Malaysia’s egg prices. However, PBT improved to RM60.6mn (+7.6% YoY), primarily driven by reduced feed costs and better operational performance in Vietnam.

• CVS Segment. Quarterly revenue surged by 21.6% YoY to RM309.8mn while core earnings soared 77.0% YoY to RM20.5mn. The commendable result was attributed to better margins from higher sales per store.

• The group has proposed a bonus issue of up to 1.2bn shares, on the basis of 1 bonus share for every 2 existing shares held as of July 2024. The proposed bonus issue is expected to be completed by 3QCY24.

• No dividend was declared for the quarter under review.

Impact

• No change to our earnings forecasts.

Outlook

• Management upholds a cautiously optimistic outlook for FY25, given the ongoing geopolitical tensions and moderate global economic growth. Consequently, we expect that the margin will normalise to 6.1% as compared to the previous year (FY23: 6.6%, FY22: 5.6%).

• Meanwhile. we view the proposed bonus issue positively, as the increase in the enlarged share base would likely further enhance share liquidity. Based on our target price of RM7.21/share, the ex-bonus price will be adjusted to RM4.84/share.

Valuation

• We revised our DCF-driven TP to RM7.21/share (k: 6.1%; g: 3.0%) after incorporating a 4-star ESG premium. Downgrade the stock to Hold from Buy due to limited risk-reward potential.

Source: TA Research - 29 Aug 2024