• Maintain BUY, with new MYR6.46 TP from MYR6.12, 19% upside. QL Resources’ 1HFY24 (Mar) results beat expectations on stronger-thanexpected integrated livestock farming (ILF) showing. Against the backdrop of soft consumer sentiment and slower global growth, we believe QLG will be able to outperform its consumer peers by offering better earnings visibility, thanks to the diversified business model and resilient demand for its products. The defensive attributes and solid fundamentals are yet to be reflected in its current valuation (close to -2SD).

• QLG’s 1HFY24 results were above expectations. Net profit of MYR216m (+22% YoY) met 56% of ours and consensus forecasts on stronger-thanexpected ILF performance. Post-results, we raise our FY24F-26F earnings by 3-6%. Correspondingly, our SOP-derived TP rises to MYR6.46 (inclusive of a 2% ESG premium), which implies 38x FY24F P/E, or below its 5-year mean.

• Results rview. YoY, 1HFY24 revenue grew 4% to MYR3.3bn with all divisions recording healthy growth, which more than offset the shortfall of the ILF segment (-3%), which was affected by the lower ASP of feed raw material. Meanwhile, 1HFY24 PBT jumped 32% to MYR313m, thanks to the sharp surge in ILF earnings (+52%) driven by favourable ASP and aid from government subsidy programmes. In addition, the marine product manufacturing (MPM) segment dished out a steady performance (+7%) on robust demand and lower input costs. QoQ, 2QFY24 revenue climbed 6% to MYR1.7bn with growth seen across all operating divisions. That said, QoQ earnings spiked 32% to MYR123m, primarily supported by margin expansion in the MPM segment (+5.1 ppt) on better seasonality and easing input costs.

• Outlook. The strong MPM earnings are expected to sustain into 3QFY24F with favourable fish landing and rising demand for fishmeal as a result of supply constraints in Peru. On top of that, profit margin should stay elevated, thanks to the USD strength and easing input costs. On the other hand, ILF earnings may normalise from the high base considering the fall in product ASPs in Vietnam and Indonesia, whereas the removal of subsidy for broiler in Malaysia is likely to compress profit margin. Meanwhile, QLG is putting in effort to enhance the operating efficiency of its convenience store business in order to mitigate the impact of rising operating costs and soft consumer sentiment.

• Risks to our recommendation include a sharp rise in input costs and intense competition.

Source: RHB Securities Research - 30 Nov 2023