January 22, 2024

 

Kenanga Investment Bank expresses optimism in QL Resources' growth across diverse segments

 
 

 

Kenanga Investment Bank Bhd (Kenanga IB) shared an optimistic outlook on the near-term prospects of Malaysian agriculture firm QL Resources, highlighting the pivotal role of livestock farming and marine products in driving the company's growth, The Edge Malaysia reported.

 

Kenanga IB anticipates that QL's livestock farming segment will sustain its momentum, bolstered by a government subsidy of MYR 0.10 (US$0.021) per egg and a price ceiling of MYR 0.41 (US$0.087) to MYR 0.45 (US$0.095) for grade A–C eggs. The research house notes that this subsidy is likely to persist until the first half of 2024, with a potential review in the second half, given the expected stability in egg supply. Minimal impact on demand is foreseen, as eggs constitute a staple food item for the public.

 

Meanwhile, the marine product division of QL is poised for growth in the third quarter of 2024 (3QFY2024). This surge is attributed to increased fish landings due to El Nino and enhanced performance of surimi-based products, facilitated by lower input costs, as indicated by Kenanga IB.

 

The completion of expansion projects in Surabaya, Indonesia, and Johor, Malaysia is expected in FY2024, significantly boosting surimi-based production. The Indonesian facility is set to increase capacity by 25,000 tonnes, and the Johor plant by 7,000 tonnes, collectively raising QL's total capacity by 49% to 97,000 tonnes annually. Kenanga IB estimates that these additional capacities could contribute additional MYR 22 million (US$4.6 million) in sales in FY2024 and MYR 79 million (US$16.7 million) in FY2025.

 

For QL's plantation and clean energy segment, Kenanga IB anticipates continued growth, driven by a higher contribution from its subsidiary, BM Greentech. The focus on higher-margin segments, such as water treatment and solar energy, is expected to benefit from various government energy initiatives.

 

However, the research house expects a slower expansion for QL's CVS segment, anchored by FamilyMart outlets, in FY2024. The reduced number of new openings is attributed to a decline in consumer sentiment. Although QL plans to expand store count in the northern region, Kenanga IB suggests that higher labour and energy costs may limit the segment's performance.

 

Despite these considerations, Kenanga IB expresses a positive view of QL Resources, citing consistent high export demand for marine products, the growth potential of the FamilyMart convenience store franchise, and the expanding poultry business in Indonesia and Vietnam.

 

Considering higher contributions from QL's marine product division, the research house has adjusted its net profit forecasts for FY2024 and FY2025. The discounted cash flow-derived target price has been raised to MYR 6.25 (US$1.32), with a "market perform" rating reflecting limited upside potential after recent share price gains. Risks include challenges in passing on cost inflation, adverse weather conditions, changes in fishing regulations, and fluctuations in currency exchange rates. At present, QL Resources is traded at MYR 5.89 (US$1.25) per share, with a market capitalisation of MYR 14.33 billion US$3.03 billion).

 

-       The Edge Malaysia

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