• QL registered a marginally stronger 9MFY21 core net profit of RM197.3m (+0.5% yoy) – within our and consensus expectations
• Excluding a higher tax impact, we note that PBT rose 17% yoy to RM286.3m for 9MFY21 - backed by sturdy contribution from the MPM & POA segments
• No change to our earnings forecasts. We remain in favour of QL in view of its overall resilient business operations and intact longer-term robust growth prospects. Maintain BUY with an unchanged 12-month TP of RM6.85

9MFY21: Within Expectations

QL Resources posted a 9MFY21 revenue of RM3.2bn (-0.4% yoy), dragged down by a softer Integrated Livestock Farming (ILF) segment but partially offset by Marine Products Manufacturing (MPM). ILF declined on the back of the adverse impact of the pandemic resulting in lower Family Mart contribution and weaker overall poultry demand. On a positive note, MPM continued to see stronger sales for its surimi and surimi-based products which offset the slump in ILF. Operationally, we note that PBT grew 17% to RM286m, predominantly due to the robust MPM performance. Accounting for an effective tax rate of 27.6% (9MFY20: 20.5%), due to tax in relation to an unrealised Indonesian Rupiah FX gain, core net profit came in at RM197.3m (+0.5% yoy) – broadly within our and consensus expectations.

Better Sequential Performance From ILF

3QFY21 revenue and core net profit stood at RM1.1bn (+3.1%) and RM76.3m (+8.8%) respectively. The better sequential performance comes on the back of higher ILF contribution which saw a higher sales volume for farm produce and higher ASP for raw material trading. For the quarter ahead, the reinstatement of the MCO is expected to derail the recovery momentum especially for the ILF (subdued egg and poultry sales) and CVS (weaker footfall) divisions. However, MPM is likely to continue to anchor growth for FY21, riding on sustained local and export demand backed by continual expansion in production capacity.

Maintain BUY

We made no changes to our earnings estimates as the results were in-line. We maintain our BUY rating on QL with an unchanged SOTP-derived TP of RM6.85. We like the stock given its impeccable track record, coupled with exciting prospects for its core businesses that are likely to have a long growth runway tapping on: i) growing domestic and export demand for MPM products, and ii) ASEAN demand for farm produce, whilst supplemented by iii) Family Mart’s robust store expansion plans.

Source: Affin Hwang Research - 26 Feb 2021