We attended an analyst briefing held by QL Resources Berhad (QL) and left the meeting with the following key takeaways:

i) MPM Segment Demand Sustains amid Lower Input Costs

ii) Egg Subsidy Remains in Place

iii) Divert Focus to Clean Energy

iii) Aims to Open 60-90 Family Mart Stores in FY25

Overall, we hold a positive outlook for the group due to its robust performance in the Marine Product Manufacturing (MPM) segment, expectations of stable demand, and improved margins in FY25. This is coupled with a strategic shift towards clean energy, making the group favourable. With that, we reiterate Buy on with an unchanged DCFdriven TP of RM7.40/share (k: 6.4%; g: 3.5%).

MPM Segment Demand Sustain Amid Lower Input Costs

In 4QFY24, overall sales for MPM segment increased by 4% YoY, while the PBT margin rose by 25% YoY due to higher export prices of fishmeal and surimibased products. Regarding the outlook, the fishmeal selling price in 1QFY25 is expected to decline QoQ due to a larger Peru fishing quota (from 1.68mn tonnes to 2.48mn tonnes), leading to greater availability of the raw material for fishmeal products. Nonetheless, the group expects better margins for fishmeal products in FY25 due to low raw material costs and stable supply. Demand on surimi-based products is expected to remain stable, with margins improving due to lower input costs. In FY24, the contribution from surimi-based products accounted for approximately 50% of the MLM segmental revenue.

Egg Subsidy Remains in Place

For the Integrated Livestock (ILF) segment, the egg subsidy remains in place. According to management, the rationalisation of egg subsidy is likely to occur in 2HFY25 following the removal of fuel subsidies. With the stabilisation of global commodity prices, we expect margins to normalise in 1QFY25 with relatively stable demand and ASP. In FY25, Indonesia aims to breakeven, driven by a recovery from sluggish demand in FY24 and improved Day-old-chicks (DOC) and broiler prices. However, the outlook for Vietnam remains challenging due to weaker consumer sentiment.

Divert Focus to Clean Energy

QL is planning to focus more on clean energy and water EPC business as part of its sustainable growth strategy. In FY24, the group disposed 1 palm oil mill (Sabah Mill 2), realising a disposal gain of RM12.8mn in 4QFY24. Going forward, QL plans to divest the remaining palm oil assets gradually and shift its focus to clean energy (Biomass and Solar). The outlook for the palm oil and clean energy (POCE) segment remains positive, driven by the renewable energy and ESG solution business, supported by the encouraging RE policy rolled out by the Malaysian government.

Aims to Open 60-90 Family Mart Stores in FY25

To recap, in the Convenience Store (CVS) segment, 4QFY24 revenue surged by 23.2% YoY, despite a QoQ decline of 4.4% to RM272.8mn. The YoY improvement was attributable to the opening of 38 new stores in 4QFY24 and better average sales per store. However, disappointment in the QoQ performance was mainly due to i) the shorter sales month in February, ii) a marginal impact from boycott sentiment, and iii) reduced demand during the 1- month fasting period, which started on 11 March, significantly dragging down the top line.

Currently, the group operates 395 Family Mart stores and 97 of these stores (FamiCafé) are halal certified. In the future, the group aims to convert approximately 100 stores/year to halal certified outlets. Meanwhile, QL targets to open 60 to 90 new stores in FY25, especially in East Coast region, including areas such as Terengganu and Kuantan. We expect CVS to remain resilient in FY25, with the flexible withdrawal from EPF account 3.

Impact

No change to our earnings estimates. We introduce our FY27 earnings forecast at RM500.0mn (+5.9% YoY).

Valuation

Reiterate Buy with an unchanged DCF-driven TP of RM7.40/share (k: 6.4%; g: 3.0%).

Source: TA Research - 6 Jun 2024