Marine products, livestock to push QL Resources amidst soft palm oil segment

KUCHING: Analysts are taking comfort in the growth opportunities in QL Resources Bhd’s (QL Resources) key marine products manufacturing (MPM) and integrated livestock farming (ILF) segments and are not concerned with its palm oil segment’s softening outlook.

Following a meeting with QL Resources, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) raised its financial year earnings estimates for 2019 (FY19E) and FY20E by 7.6 tand 6.2 per cent mainly on better margin assumptions for MPM.

According to Kenanga Research, MPM should continue to be the group’s primary earnings contributor at 58 per cent of the first nine months of 2019 (9M19) profit before tax (PBT).

“We take comfort in the growth opportunities in the key MPM and ILF segments,” the research arm said. “Asits palm oil activities only contributes marginally to group performance (circa five per cent of 9M19 PBT), we are not overly concerned by its soft outlook.”

With recent improvements in weather and fish breeding conditions, management expects nearterm results to be sustained by better production costs.

“We believe that facility upgrades in Hutan Melintang (i.e. chilled surimi-based production) and new aquaculture initiatives could also contribute to the segment’s growth,” Kenanga Research said.

As for the group’s ILF segment, the research arm opined that the local poultry scene is expected to be challenging on volatile egg prices. While commodity prices trended higher, the group’s feed mills operation had help to mitigate some cost pressures.

“Management plans to tap on meeting the expanding demand in Vietnam and Indonesia on top of the more stable market pricing.

“We recently visited the group’s layering farm in Tay Ninh, Vietnam, where plans to double output there by FY22 could boost the segment,” it said.

“The group also looks to increase the egg and day-old-chick production in Indonesia by 20 per cent and 50 per cent, respectively.”

Meanwhile, despite a highly matured palm oil estate in Malaysia and Indonesia and anticipated fresh fruit bunch (FFB) production growth of 20 per cent, QL Resources continue to face margin pressures from poor crude palm oil (CPO) prices.

“While our in-house view forecasts an average current year 2019 (CY19) CPO price of RM2,400 per metric tonne (MT), management takes a more cautious view of RM2,000 to RM2,200 per MT for its FY20, likely owing to the year average only registering at RM2,005 per MT to date.”

On a side note, Kenanga Research mentioned that the FamilyMart chain appears to have achieved the targeted 90 outlets in FY19, on track of the FY22 target of 300 locations.

“The group will continue branching out beyond the Klang Valley, with potential openings in Johor, Ipoh and Melaka. Results from here are expected to be segregated by segment in FY20.”