Analysts reassured of QL Resources’ long-term strategies being on track

KOTA KINABALU: Following a meeting with QL Resources Bhd (QL Resources), analysts felt reassured that the implementations of the group’s long-term strategies are on track.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the marine products manufacturing (MPM) should see recovering results postpoor fishing yields in financial year 2018 (FY18).

The research arm noted that palm oil activities (POA) will benefit from its maturing estate while integrated livestock farming (ILF) may operate in a mixed environment.

“Post meeting, we continue to remain optimistic with the delivery of topline growth amidst challenges in certain sectors.

“This is partly thanks to the group’s well-diversified base and regional exposure,” Kenanga Research said.

Kenanga Research highlighted that while heavy investments are geared mainly for longer term gain under QL Resources’ five-year plan, the group’s market leading position should keep the company relevant amidst a highly competitive landscape.

However, the research arm left its assumptions unchanged as it believed QL Resources’ merits have been sufficiently accounted in its estimates.

On QL Resources’ MPM, Kenanga Research noted that as weather conditions are showing meaningful improvement, management is hopeful for better fishing yields that could return margins to healthier levels.

“This could be further supported by the recently commissioned new surimi-plants in Hutan Melintang.

“In FY17, profit before tax (PBT) margins registered at 16.7 per cent as opposed to 13.7 per cent in FY18.”

It further noted that with the coming 2020 Tokyo Olympics, management mulls potential collaborations to support an anticipate surge in demand there, which could boost FY20.

As for QL Resources’ POA, Kenanga Research pointed out that with the group’s circa 60 per cent prime age profile, management is hopeful for a circa 15 per cent growth in the fresh fruit bunch (FFB) yields.

“In the medium term, circa 30 per cent of the plantation portfolio which is of a younger age category is poised to contribute further to FFB output.

“Management anticipates CPO prices to trail between RM2,350 per metric tonne (MT) and RM2,450 per MT for FY19.”

This was in-line with the research arm’s inhouse expectations of RM2,400 per MT on average for current year 2018 (CY18).

On another note, Kenanga Research said that the egg market in Peninsular Malaysia is overcrowded as egg producers continue to scale up production.

“In the ILF recent results, its Indonesian performance was dampened by poorer broiler contributions.

“Going forward, management expects its other markets -- such as East Malaysia and Vietnam -- to remain stable.

“Hence, the expanded Vietnam poultry layer unit and feed mills are expected to contribute favourably to the group.”

Meanwhile, Kenanga Research highlighted that on the latest count, QL Resources has opened 49 new FamilyMart stores, on track with FY18’s target.

It also highlighted that management earmarks to open another 50 stores in FY19 towards their FY22 target of 300 stores.

“Whileoperationsarenotexpected to break even in FY19, management expects the store chain to become profitable in FY20 from an expected store base of circa120 branches.”