QL to see improved earnings, better margins ahead

KUCHING: QL Resources Bhd (QL) is expected to realise increased net margins ahead, spurred by an improvement in earnings margin in its financial year 2014 ending March (FY14).

Higher production cost and depressed selling price of eggs in Peninsular Malaysia were the culprits behind an otherwise decent year in the food group’s FY13 which saw a 2.6 per cent drop in earnings per share year on year (y- o-y).

Given the improvement in average selling price of eggs and lower feed costs, as well as higher earnings contribution from its marine division expansion, Maybank Investment Bank Bhd ( Maybank IB) expected the group to chart a stronger growth of 20 per cent y- o-y in net profit for FY14.

“Our channel checks in the major grocery stores in the northern and central Peninsular Malaysia show that egg prices have recovered across all grades. The eggs are now selling at close to ceiling prices during festivals. Hence, we believe the oversupply situation has ended.

“Coupled with the retracement in raw material (feed meal) prices, pretax margin should recover in first quarter (1Q) FY14 to the level of eight per cent,” the bank opined in a stock update.

To recap, QL’s livestock division had suffered lower pretax margins of 5.6 per cent and 3.2 percent in 2QFY13 and 3QFY13 while pretax profit for the division dropped 32 per cent and 60 per cent y- o-y respectively.

In view of the ongoing bird flu outbreak, Malaysia had joined Vietnam and Indonesia to ban all poultry products from China, effective April 23, after the first case of human infection with H7N9 reported in Shandong.

This should have no impact on demand affecting QL’s livestock farming, Maybank IB noted, adding that there were no changes to its earnings forecasts, Expecting the group to chart 16 to 20 per cent net profit growth in FY14 and FY15, it maintained a target price of RM3.50 per share which implied 16.4 times FY14 price earnings ratio.