Expecting sequentially higher earnings
Maintain SELL with unchanged TP of MYR4.00
QLG’s 3QFY22 results were below expectations on higher-than-expected effective tax expense. We believe sequential earnings could fare better on resilient demand for MPM products, alleviated margin pressure in the ILF division from the Governments poultry product subsidies and improved POCE division led by rising CPO ASPs. As such, we leave our earnings estimates unchanged. Maintain SELL with unchanged TP of MYR4.00 (WACC: 7%, LT growth: 4%) on demanding valuations.
Below expectations
QLG’s 3QFY22 net profit of MYR60m (-22% YoY, +30% QoQ) brought 9MFY22 net profit to MYR148m (-25% YoY), below expectations at 68% of both our/consensus full-year earnings estimates. The earnings shortfall mainly came from higher-than-expected tax expense.
Underperformance in MPM and ILF
Key takeaways from 3QFY22 results: (i) the marine division’s (MPM) pretax profit weakened 16% YoY as higher feed input costs, fuel and supply disruptions led to lower margins (-4.5 ppts YoY) despite stable sales volume of surimi-based products, (ii) livestock division (ILF) pre-tax profit also fell 45% YoY on the back of elevated feed costs and egg price controls in Dec 2021, (iii) its palm oil & clean energy (POCE) division was the only core segment to post positive earnings growth upon higher CPO ASPs and FFB tonnage harvested at its Indonesian plantations along with inclusion of Boilermech (BOILERM, Not Rated) as a subsidiary.
Earnings estimates are unchanged
Feed raw material costs are likely to remain high in 4QFY22. However, we expect rising demand for MPM products to keep earnings stable while concerns over ILF’s compressed margins could be allayed by Government subsidies of 5sen/egg (from 4 Feb to 5 Jun) in sequential quarters. We understand that FamilyMart has also experienced strong sales momentum upon the easing of movement restrictions and could be disclosed as a separate segment as early as 4QFY22. Hence, we make no changes to our
earnings estimates for now