Review

• QL Resources Berhad (QL) reported 1HFY25 core earnings of RM235.7mn, meeting 53% of our full-year forecast and 50% of the consensus estimate.

• No dividend was declared for the quarter under review.

• 1HFY25 revenue rose by 6.2% YoY to RM3.5bn, mainly driven by stronger contributions from the Convenience Store Chain (CVS), Integrated Livestock Farming (ILF), and Marine Product Manufacturing (MPM) segments. Core earnings grew by 9.4% YoY, reflecting higher turnover and improved margins across all segments, except for the MPM segment.

• MPM Segment. 1HFY25 segmental revenue increased by 2.2% YoY to RM726.6mn, although PBT grew by 4.6% YoY to RM129.3mn. The reduction in earnings was mainly attributed to: i) weak fishing activity coupled with higher operating costs, ii) continued losses from shrimp farming operations in Kudat, Sabah, and iii) margin pressures from a weaker USD. Consequently, the PBT margin contracted by 1.3%-pts to 17.8% in 1HFY25.

• Palm Oil and Clean Energy Segment. Sales in 1HFY25 dropped marginally by 3.0% YoY to RM344.5mn, primarily due to: i) slower project recognition by BM Greentech, and ii) lower fresh fruit bunches (FFB) production in 1QFY25. However, PBT surged by 52.5% YoY to RM38.6mn, driven by improved margins in palm oil activities and BM Greentech’s solar projects.

• ILF Segment. 1HFY25 PBT rose by 13.2% YoY to RM140.1mn, thanks to by lower feed costs, continued egg subsidies, and improved performance from overseas operations in Vietnam and Indonesia. Meanwhile, 1HFY25 revenue grew by 6.9% YoY to RM1.8bn, driven by higher egg production volumes and increased sales in feed raw materials trading.

• CVS Segment. Segmental revenue for 1HFY25 improved by 15.4% YoY to RM611.2mn, driven by an increase in the total number of stores (a net addition of 34 FamilyMart outlets and 41 FamilyMart Mini kiosks) and higher average store sales during festive periods in 1QFY25. Consequently, PBT increased by 27.7% YoY to RM36.5mn, supported by higher average store sales in 1QFY25. As a result, the 1HFY25 PBT margin improved by 0.6%-pts YoY to 6.0%.

Impact

• No change to our earnings forecasts.

Outlook

• The ILF segment remains QL’s primary earnings driver. Management maintains a positive outlook for the segment in 2HFY25, supported by the continuation of the egg subsidy and the ceiling price mechanism.

• Amid moderate global economic growth, management remains cautiously optimistic about FY25. Accordingly, we project a normalised profit margin of 6.2% for FY25, compared to 6.6% in FY24.

Valuation

• We adjust our TP to RM5.25/share (previously: RM7.21) following the bonus issue, based on DCF valuation (k: 6.1%; g: 3.0%) and a 4-star ESG premium, Maintain Hold.

Source: TA Research - 2 Dec 2024