KUALA LUMPUR (March 14): Hong Leong IB Research has maintained its "Sell" rating on QL Resources Bhd (QL) at RM6.94 with a higher target price of RM6 (from RM5.10) and said QL’s  subsidiary, Family Mart is expected to break even by mid FY20 with a base of 110 stores, after factoring in better profitability in the Family Mart division and increased egg production.

In a note today, HLIB's analyst, Gan Huan Wen said HLIB favours QL for its diversified revenue streams, seasoned management team and decent growth prospects.

“Despite this, we feel that share price has risen beyond justifiable levels with PE valuation of approximately 50x.

“Nonetheless, noting QL’s favourable outlook, we raise our PE multiple from 35x to 40x pegged to +1SD above 5-year mean PE,” said Gan.  

Gan stated the company prefers to continue its egg production growth capacity in Malaysia and Vietnam.

Gan said QL will continue to ramp up egg production capacities in key markets.

"QL expects to double egg production in their Vietnam poultry layer unit from 850k to 1.85m eggs per day within 3 years and are positive that egg consumption will increase in the economic boom.

"With QL’s stake in oil palm hitting maturity,FFB production is expected to be significantly higher in FY19 and expect the better FFB production to be mitigated by depressed CPO prices in CY19

"However, QL’s fish ball and surimi processing remain at the mercy of fish catches, which is greatly affected by weather conditions,the group has turned to prawn aquaculture production as an alternative," said Gan.

HLIB Research raised its FY20/21 forecasts for QL by 3.4% and 4.3%.

At 9.31am, QL shares fell 1.15% or 8 sen to RM6.86 with 10,300 shares traded.