KUALA LUMPUR: QL Resources Bhd is expected to post stronger results in its financial year ending March 31, 2023 (FY23) with an estimated 33.3% growth in net profit, according to CGS-CIMB Research.

       This would be driven by a pick-up in economic activities and consumer footfall, generating higher demand for its products across all business segments, the research house noted.

       “Despite higher input prices, we believe QL can mitigate its impact on margins via better cost control and greater economies of scale,” according to CGS-CIMB.

       QL is an integrated agro-based business group, with divisions including integrated livestock farming, marine products manufacturing (MPM) and palm oil activities.

       The group is the largest surimi producer and one of the biggest egg producers in South-East Asia, as well as the largest fishmeal manufacturer in Malaysia.

       Its portfolio of consumer food includes brands such as Mushroom, Figo, Ika’s, Suria and OceanRia, and through a downstream expansion in 2016, the group operates FamilyMart convenience stores in Malaysia.

       CGS-CIMB Research has raised its FY23 to FY24 earnings per share forecasts for QL to account for better contribution from the poultry segment, and increased its target price for the stock to RM5.60 (38 times 2023 estimated price-to-earnings).

       The research unit’s “add” call on the stock is backed by the defensive nature of QL’s businesses, strong brand name (poultry and MPM), strong proxy to consumer spending recovery and environmental, social and governance-related business namely palm oil and clean energy (POCE).

       Meanwhile, for its fourth financial quarter ended March 31, 2022 (4Q22), QL’s revenue dipped 2% quarter-on-quarter due to lower contributions from both MPM due to seasonality factors and POCE arising from lower tonnage of fresh fruit bunches processed.

       CGS-CIMB, however, noted that QL’s 4Q22 net profit rose 16.1% quarter-on-quarter to RM69.4mil, owing to a lower tax rate.

       This was above expectations due to a surge in contribution from integrated livestock farming from higher poultry selling prices and government cost subsidy from Feb 5, 2022 to June 4, 2022.

       A 3.5 sen per share dividend was declared (39% dividend payout), as expected.

       In 4Q22, QL also disclosed contributions from its convenience store chain (CVS) segment as a standalone segment for the first time.

       CGS-CIMB Research noted that the CVS segment recorded a 31% and 242% year-on-year growth in revenue and pre-tax profit, respectively, in FY22 to RM637.2mil and RM43mil respectively.

       This is attributable to the easing of lockdown measures since the third quarter of 2022, resulting in better consumer footfall.

       The CVS segment contributed 12.1% and 13.4% of QL’s total FY22 revenue and pre-tax profit.

       Meanwhile, Hong Leong Investment Bank (HLIB) Research said QL’s FY22 core net profit of RM217.3mil (6.5% drop year-on-year) was in line with its and consensus expectations at 102% and 103%, respectively.

       “We gather that the softness in MPM was due to lower sales volume for fishmeal, surimi-based products and aquaculture; tough operating environment in low fish landing cycle; and shortage of foreign fishing crew,” said the research unit.

       As for the integrated livestock farming, HLIB Research said the segment should be supported by the government’s cost subsidy, which could help to partially buffer margin compression given the challenging commodity prices.

       “We believe the CVS division will continue to contribute positively to the group with the resumption of the economic activities coupled with border reopening,” it said.