QL Resources Bhd
(Feb 28, RM8.16)
Maintain buy with an unchanged target price of RM9.30: QL Resources Bhd’s revenue for the cumulative nine months ended Dec 31, 2019 (9MFY20) was RM2.72 billion or +17% year-on-year (y-o-y), underpinned by higher contribution from the marine products manufacturing (MPM) up 16% y-o-y and integrated livestock farming (ILF) (+21% y-o-y) segments, slightly offset by palm oil activities (POA), down 17% y-o-y due to lower fresh fruit bunch production and average selling price of crude palm oil.
A steady growth momentum for the MPM continued over the period as demand for its surimi-based products remained resilient. The ILF’s revenue surged on robust growth in convenience store (CVS) operations parked under the ILF, on top of better contributions from its regional and Sabah poultry operations.
Overall, QL Resources’ core net profit was RM196.4 million (+13.2% y-o-y) was within our and consensus expectations — 78% of the respective forecasts.
We expect the group’s key MPM and ILF businesses to still thrive as demand for surimi-based products and affordable sources of protein such as eggs and broiler chickens is expected to remain resilient in tandem with a growing population and rising average consumption.
We gather the group’s FamilyMart (CVS) operations under the ILF segment would likely be segmented out by the fourth quarter of FY20 (4QFY20), which should provide further visibility to investors. We expect a sizeable CVS contribution to the group’s earnings going forward.
Our earnings estimates for QL Resources are unchanged as the results are broadly in line with our expectations. We still favour QL Resources for its solid long-term growth prospects, driven by the CVS operations’ robust growth momentum on top of the core defensive MPM and ILF segments.
Downside risks include disruptions in the FamilyMart expansion plans, deteriorating fish catch conditions and declining poultry prices. — Affin Hwang Capital, Feb 28