KUALA LUMPUR: Kenanga Research has downgraded QL Resources Bhd’s outlook on the back of volatile raw prices following the earnings disappointment in the group’s recent quarterly results.

       The research house said the group’s first quarter ended June 30, 2021 (Q1FY22) profit after tax after minority interest of RM42mil came to 14% and 15% of its and consensus full-year estimates due to the re-emergence of a low fish landing cycle and an unforeseen drastic regional surge of the pandemic, contributing to weaker sales in its marine products manufacturing (MPM).

       “Post-results, our FY22 is revised down by 8% to RM287mil on account of weak MPM performance in Q1 and challenging profit before tax margins,” it said.

       In line with the lower forecast, Kenanga downgraded QL Resources to “market perform” and cut its target price to RM6 from RM6.90 previously, based on 51 times forecast on FY22 price-earnings ratio, closely in line with plus-one standard deviation over its three-year mean.

       In the coming quarters, Kenanga expects group earnings to be anchored by its MPM segment due to a stable fish cycle coupled with persistently robust sales momentum, especially from the frozen surimi-based products.

       MPM activities are historically lower in Q4 of the group’s financial year due to the monsoon and it expects improvement ahead given no further resurgence of the pandemic.

       The research house expects the consolidation of Boilermech to solidify and provide double-digit contribution to the topline while FamilyMart is expected to see gradual improvements underpinned by normalising footfalls with the easing of movement restrictions.“The group is on track to meet its FY22 target of 300 locations, with circa 212 stores opened to date.

       “Hence, we reiterate our view that this segment will be an exciting avenue of growth, premised on its high-margin fresh food content products,” it added.