Review

• QL Resources Berhad’s (QL) 1HFY24 core earnings of RM215.5mn (+22.2% YoY) met our expectations but exceeded the street’s forecast, accounting for 55% and 56% of both ours and the market’s full-year projections.

• No dividend was declared in the quarter under review, as expected given that the company usually payout dividend once per annum.

• YoY, 1HFY24 revenue grew mildly by 4.1%, driven by higher contributions across the board, including: (i) Marine Product Manufacturing (MPM) (+3.7%), (ii) Palm Oil and Clean Energy (POCE) (+19.0%), and (iii) Convenience Store Chain (CVS) (+24.7%), partially offset by marginal decline in Integrated Livestock Farming (ILF) (-3.3%). Consequently, the PBT jumped 31.9%, thanks to recovery in POCE and better trading margin in ILF.

• MPM Segment. 2QFY24’s segmental revenue and PBT improved marginally by 3.0% and 2.6% YoY, backed by better fish landing and resilient demand for surimi-based products. Notwithstanding the cautious view on escalating intensified competition from Russia in surimi’s sales performance, the company is confident to continue register steady earnings growth stemming from better production efficiency and robust sales volume. The overall margin should be improving in tandem with lower input costs, albeit we expect the fish landing will be impacted mildly in upcoming 3Q due to the onset of Northeast monsoon in December.

• POCE Segment. Following a substantial growth in segmental revenue (+14.5% YoY) and a threefold PBT growth, the headwinds are likely to be over in line with higher FFB tonnage produced and processed coupled with higher project delivery in BM Greentech. Notably, BM Greentech’s profitability has improved significantly after the normalisation of PV modules’ cost and more delivery of higher margin project in bio-mass segment. The company is anticipating the CPO to be hovering at c.RM3700 in 3Q and the FFB production should maintain at current level as 2QFY24.

• ILF Segment. 2QFY24 revenue dropped by 3.6% YoY, attributed to lower trading price for feed raw material. That said, its PBT nearly doubled with significant lower unit cost and strong sales performance in Malaysia and Indonesia. We gather that the outlook might be clouded by intensified competition in feed raw material trading and weaker sales volume in Indonesian broiler operation due to dampened consumer sentiment.

• CVS Segment. The revenue growth of 23% YoY in the CVS segment chiefly attributed to establishment of 60 new Family Mart (FM) outlets and 7 new FM mini kiosks. However, the earnings growth of 15.7% was partly offset by higher opex, which includes headcounts and utility cost.

Impact

• Our earnings projections are reiterated.

Outlook

• Going forward, the company guided with brighter but cautious tone that the business operation is expected to continue register an intact earnings growth in 2HFY24, mainly supported by ILF and MPM segments on the premise of continued cost subsidy for farming production and easing key input costs. As for POCE, the growth is likely to be capitalising on the robust demand of renewable energy (RE) construction and solution with better project margin. That said, we are aware that the RE only made up of c.13% of the total profit in BM Greentech.

Valuation

• Maintain Buy with an unchanged DCF-driven target price of RM6.70/share (k: 6.4%; g: 3.0%).

Source: TA Research - 30 Nov 2023