Analysts continue to remain optimistic on QL Resources’ topline growth
KUCHING: The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) remains optimistic on the delivery of QL Resources Bhd’s (QL Resources) topline growth despite challenges in certain sectors.
According to Kenanga Research, this is partly thanks to the group’s well- diversified base and regional exposure.
“While heavy investments are geared mainly for longer term gain under its five-year plan, the group’s market leading position should keep the company relevant amidst a highly competitive landscape,” the research arm said.
However, the research arm trimmed its financial year 2019 to 2020 (FY19E to FY20E) earnings assumptions by 2.1 and 0.2 per cent mainly accounting for weaker palm oil activities ( POA) results.
Kenanga Research noted that the group’s palm oil estate currently consists primarily of prime aged palms (circa 80 per cent) with an anticipated circa 15 per cent growth in the fresh fruit bunch (FFB) yields.
“However, despite better output, the segment appears to suffer from diminishing crude palm oil ( CPO) prices, which management anticipates to trail between RM1,800 per metric tonne (mt) to RM2,000 per mt for the remainder of FY19.”
On QL Resources’ marine products manufacturing ( MPM) segment, Kenanga Research recalled that management attributed the first half of 2019 (1H19) normalising results to better catch rates as weather conditions improved, translating to better overall margins for the segment.
“While management is hopeful that the favourable conditions would persist, we believe the commissioning of its new frozen surimi-based plant in 2H19 could provide an avenue for better cost optimisation if weather conditions change.
“Additionally, the completed expansion of its Hutan Melintang facilities and progressive expansion of its fishing fleet could provide growth opportunities for this segment.
“Potential collaborations ahead of the 2020 Tokyo Olympics could also be another win for the MPM segment.”
Kenanga Research highlighted that despite the Malaysian integrated livestock farming ( ILF) operations being dragged by depressed egg prices and higher feed costs in 1H19, the Malaysian landscape is expected to improve from the normalising supply and demand for eggs.
“We take comfort in the buffer provided in its foreign segments assuming the local tailwinds are not sustainable into the long term.”
As for the group’s FamilyMart’s expansion, Kenanga Research observed that it continues to be on track, to achieve circa 90 locations by FY19, with the group opening its first store outside of the Klang Valley in Skudai, Johor.
The research arm noted that this sub- segment is expected to break even by FY20 from an expected store base of circa 120 outlets.