QL Resources’ FY17 results garners mixed views
KUCHING: QL Resources Bhd’s (QL) financial year 2017 (FY17) results have garnered mixed views, either meeting expectations or coming in slightly below estimates.
As per a filing on Bursa Malaysia, QL reported that earnings for the current year to date ended March 31, 2017 amounted to RM195.92 million, up two per cent from the previous year.
QL’s full year FY17 earnings met the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) and consensus expectations, accounting for 98.1 per cent and 98.6 per cent of full year earnings forecasts, respectively.
On the other hand, QL’s FY17 profit after tax and minority interest (PATAMI) was slightly below the research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) expectations but came within consensus numbers, making up of 94 per cent and 96 per cent of the respective full-year estimates as it expected stronger earnings from all segments.
The 4.2 per cent interim dividend declared by QL for a total year to date (YTD) dividend of 7.25 sen was above Kenanga Research’s expectations as the research arm had only anticipated a full-year dividend payment of 5.5 sen based on an expected circa 30 per cent payout ratio which was a historical three- year average for the group.
Post results, Kenanga Research trimmed its FY18E earnings assumptions by circa seven per cent as the research arm moved towards more conservative performance across all segments.
Additionally, the research arm introduced its FY19E numbers.
While concerns may surface on the marine products manufacturing segment’s (MPM) eroding margins from the continuous decline in fish catches, Kenanga Research believed the resilient demand for QL’s product will continue to keep the group’s contributions intact alongside favourable forex exposures from its exports.
“On the palm oil businesses, while the upward shift in crude palm oil ( CPO) prices may have brightened segmental prospects, current levels may be unsustainable as industry production ramps up in the later part of the year, potentially bringing prices to a correction.
“Additionally, the livestock segment appears to strive with its overseas operations having a broader market base and cheaper production costs.
“Meanwhile, the venture into the convenience chain business continues to be promising but may not contribute significantly to the group in the short-term (with ten existing stores operational),” the research arm said.
MIDF Research believed that QL will continue to report satisfactory performance in the next quarter despite the subdued performance of the MPM segment as it is well mitigated by the recovery of integrated livestock farming (ILF) and palm oil activities (POA) segment in the near term.
All in, MIDF Research reaffirmed its ‘neutral’ stance with an unchanged target price of RM4.62 per share.
As for Kenanga Research, it maintained ‘underperform’ with a lower target price of RM4.30 per share, from RM4.34 per share previously, on the back of a weaker FY18E earnings with a revised 25-fold price earnings ratio (PER) (from 23.5-fold PER), as the research arm relooked into the stock’s five-year mean PER at +0.5 standard deviation (SD).
“While the group presents strong fundamentals, we believe most of the positives may have already been priced in from its rich valuations,” Kenanga Research said.
The research arm noted that the added liquidity from the proposed 3:10 bonus issue may further stretch the stock’s valuation where it is now trading at 25.8- fold PER on FY18E earnings per share (EPS).