• Maintain HOLD (TP: RM6.70). QL’s 1QFY25 PATAMI of RM107.4mn (+16% YoY) was in line with both our and consensus forecasts, at 25% and 23% respectively. QL’s 1QFY25 revenue increased by +1% YoY, mainly driven by higher sales in CVS segment and offset by the lower sales from other segments. Net profit surged by +16% YoY due to surge in profit margin from CVS segment, driven by higher average store sales and from POCE segment which benefited from higher CPO prices as well as improved earnings from solar projects. We remain cautiously optimistic on QL's outlook especially on ILF and CVS, supported by resilient demand for basic necessities. We maintain a HOLD call on QL with an unchanged SOP-derived TP of RM6.70, implying a FY25F PER of 37x.

• Key highlights. QL’s 1QFY25 revenue and PBT surged by +1% YoY and +16% YoY respectively, attributed by improved profit and margins in all segments and the spike in CVS segment sales. The improved margins and performance in the CVS segment (PBT: +77% YoY) was primarily driven by higher average store sales supported by the increase in number of FM stores and FM mini (+20 QoQ). Additionally, the POCE segment experienced better performance (PBT: +25% YoY) contributed by higher CPO prices and improved profit for solar projects in BM Greentech. As for the ILF segment, PBT increased by +8% YoY despite slightly lower sales was mainly due to the reduction in feed cost, continued egg cost subsidy as well as contributions from the new layer farm. Similarly, on a QoQ basis, 1QFY25 PATAMI rose by +9% to RM107.4mn, due to increase in consumer expenditure in the CVS, and the lower input cost and better performance in ILF segment.

• Earnings Revision. No changes to our forecast.

• Outlook. We remain cautiously optimistic about QL's outlook, as consumer demand may be supported by the EPF Account 3 withdrawal scheme and the civil servant wage hike. MPM earnings is anticipated to remain the same, as selling price are expected to continue to face pressure but be offset by lower material input costs. Similarly, the ILF segment is expected to remain resilient supported by the stabilised feed cost, continued egg subsidy and the better performance of Vietnam and Indonesia operations. The CVS segment is expected to grow in line with the expansion plan of the new stores and FM mini coupled with the potential higher consumer demand supported by the cash aids and higher disposable income. However, the downside risks include: i) volatility of commodity raw material prices, and ii) weak market sentiment in Indonesia and Vietnam for ILF segment.

Source: BIMB Securities Research - 30 Aug 2024