Better prospects heading into FY23F
? We reiterate our positive view on QL, backed by strong prospects going
forward across its key divisions: ILF, MPM and CSC.
? QL expects higher contribution from its CSC segment with its ongoing store
network expansion plans and gradual recovery in consumer footfall.
? Reiterate Add, with an unchanged TP of RM5.60 (38x CY23F P/E).
Upside to MPM segment in FY23F backed by strong demand
? In the marine product manufacturing (MPM) segment, QL is positive on its prospects in
FY23-24F thanks to strong pent-up demand for surimi products in both local and export
markets. The demand is driven by easing lockdown measures, and supply disruption for
surimi producers in Vietnam, Russia and India.
? Meanwhile, QL expects the impact of rising costs (increase in surimi and other ingredient
costs, minimum wage hike, etc.) on margins will be mitigated by selling price hikes and
greater economies of scale (better fish landing with an increase in fishing activities).
Regional expansion plans to drive ILF segment
? For its integrated livestock farming segment (ILF), QL is expanding its egg and broiler
production capacity. This is particularly in Indonesia (broiler annual production to rise
from 8m to 12m; daily egg production to rise from 0.9m to 1.4m in the next three years)
and Vietnam (daily egg production to rise from 1.9m to 1.5m by end-FY3/24F), as these
countries have conducive markets given lower egg and poultry consumption per capita.
? Despite higher feed raw material prices, QL expects minimal impact to its feed raw
material trading business as it is passing on additional costs to customers. Also, QL is
witnessing strong demand for eggs in Malaysia due to the easing of lockdown measures.
We also expect the impact of higher feed costs to be mitigated by government subsidies
in Malaysia and strong demand for poultry products (better pricing power).
Plans to divest oil palm related businesses
? On its palm oil and clean energy division (POCE), QL said it aims to divest its businesses
related to palm oil activities. QL said it plans to put more focus on its clean energy
business, as well more emphasis on ESG-related matters. We expect more clarity on
these divestments in 2HFY23. Meanwhile, QL said it has a strong orderbook for FY23
for its clean energy business (via Boilermech), and is optimistic on yoy revenue growth.
Yet, margin erosion from higher material costs should lead to flattish profits.
CVS: Exciting segment with strong growth potential
? It expects the contribution from the convenience store chain segment (CSC; FY22
revenue: +31% yoy, PBT: +242% yoy) to continue to rise going forward, backed by the
easing of lockdown measures (higher consumer footfall) and store network expansion.
There are currently 291 Family Mart stores nationwide, with plans to reach 600 stores
in the next five years. QL has recently introduced new Family Mart touchpoints, i.e.
FamilyMart Mini (FM Mini) self-service kiosks (20 currently and aims to roll out 100 by
end-FY23F) and ‘Food Superstore’ concept stores (plans to reach 300 stores by endFY26). These are mainly located in high traffic areas and are easily accessible, focusing
on ready-to-eat and frozen foods (home consumption). In addition, QL has invested
RM100m to expand QL’s kitchen operations to support Family Mart’s store growth plans.
Reiterate Add
? With no surprises from QL’s FY22 results briefing, we make no changes to our FY23-25
EPS estimates. We also keep our Add call and TP of RM5.60 (38x CY23F P/E, +1 s.d.
of 5-year average P/E). Our Add call on QL is backed by: i) the defensive nature of its
various businesses, ii) strong brand name (mainly in poultry and MPM segments), iii)
strong proxy for consumer spending recovery and iv) ESG-related business (POCE).
? Potential re-rating catalysts: higher poultry prices and/or higher-than-expected
contributions from the MPM segment. Downside risks: a sharp rise in feed cost prices
and/or lower margins in the MPM segment.