QL’s 9M21 core PATAMI of RM197.3m (+0.5%) was in line with ours (74.1%) and consensus (73.8%) estimates. Going forward, QL will drive profitability by increasing egg production in Vietnam and Indonesia. Furthermore, we expect FamilyMart’s profitability to accelerate given the relaxation of MCO rules recently and their aggressive outlet expansion plans. Forecasts remain unchanged. Our TP of RM5.88 pegged to 50x PE multiple on FY22 earnings and HOLD call is unchanged.

In line. 3QFY21 core PATAMI of RM76.3m (QoQ: +8.8%; YoY: +0.3%) brought 9M21’s sum to RM197.3m (+0.5%). This was in line with ours (74.1%) and consensus (73.8%) estimates.

Dividend. None declared (9M21: None). 3Q20: None (9M20: None). QL typically only declares dividend once a year, usually in Jul or Aug of the following FY.

QoQ. Core PATAMI rose +8.8% in tandem with higher sales +3.1%. This is mainly due to better profitability in the Integrated Livestock Farming (ILF) division (PBT: +37.2%) from higher sales volume of farm produce and better higher ASP for raw material trading. This was achieved despite lower contribution from FamilyMart operations (which earnings are parked under the ILF division for the time being). While Marine Product Manufacturing (MPM) sales were lower (-5.6%) due to lower sales volumes from seasonal factors, MPM’s PBT was flat (+0.2%) due to better margins from higher selling price.

YoY. Sales were flat (+0.4%) as increased (MPM) (+10.3%) sales were cancelled out by lower ILF (-1.3%) and Palm Oil Activities (POA) (-23.6%) revenues. Better profitability in the MPM division (PBT: +37.3%) was due to better volumes and ASPs for fishmeal, surimi based products and aquaculture. This was offset by lower ILF profitability (PBT: -14.7%) due to lower egg price in Peninsular Malaysia, lesser contribution from FamilyMart operations and sluggish broiler performance in East Malaysia and Indonesia, resulting in overall core PATAMI remaining flat (+0.3%).

YTD. Core PATAMI (+0.5%) and sales (-0.4%) were flat. This was due to better MPM profitability (PBT: +35.8%) being cancelled out by weaker ILF contribution (PBT: - 24.6%) due to similar reasons mentioned in the YoY paragraph.

Outlook. We are positive on the ILF division’s long term earnings, as they continue to tap into growing egg consumption in Vietnam and Indonesia. Relaxation of MCO rules and returning foot-traffic to public areas should see Family Mart earnings rebound. Given their rapid outlet expansion plans and current soft sales in outlets in travel hubs (airports, MRT stations etc.) which is expected to rebound as travel begins to return to normalcy with vaccine optimism, we expect FamilyMart profitability to accelerate going forward.

Forecast. Unchanged.

Maintain HOLD. Our TP of RM5.88 pegged to 50x PE multiple on FY22 earnings and HOLD call is unchanged. While we like QL for its diversified revenue streams, savvy management and growing Family Mart division, we reckon QL is fairly priced at current levels (55.6x forecasted FY21 earnings.

Source: Hong Leong Investment Bank Research - 26 Feb 2021