CVS, POA segments likely to supplement QL’s growth prospects

QL Resources Bhd
(Feb 13, RM8.40)
Maintain buy with a higher target price (TP) of RM9.30:FamilyMart’s current store count totalled about 160 as at end-2019, well on track of the management’s target of 300 stores by the financial year ending March 31, 2022 (FY22). Notwithstanding the increasing store count, we gather that FamilyMart generates a class-leading average revenue/store compared with its peers, thanks to its higher focus on food and beverage/ ready-to-eat products.

Elsewhere, crude palm oil (CPO) prices have been on an uptrend on the back of an anticipated higher demand for palm oil products compared to production. We lift our CPO average selling price (ASP) assumption to RM2,500-RM2,600/tonne for FY21/22E (estimate) (from RM2,300-RM2,400).

We expect QL Resources Bhd’s marine products manufacturing (MPM) growth to remain sturdy moving forward mainly driven by a continued ramp-up in the production of chilled and frozen surimi-based products. For the integrated livestock farming (ILF) segment, we foresee brighter prospects on higher egg production (from 5.7 million to 7.8 million eggs/day within the next three years) further supported by favourable egg prices.

We raise our earnings by 2%-4% for FY20-22E, largely to factor in a higher revenue per store for convenience store (CVS) operations as well as a higher CPO ASP assumption for the palm oil activity (POA) segment. Post-revision, we arrive at a higher sum of the parts-derived 12-month TP of RM9.30. While this implies a hefty forward price-earnings ratio of 52 times FY21E earnings per share, we believe the higher valuation is warranted given QL’s sustainable long-term earnings momentum, in our view. On top of resilient growth from the core defensive MPM and ILF businesses, QL’s earnings prospects are further supplemented by its CVS and POA segments. Hence, we reiterate our “buy” rating on the stock. — Affin Hwang Capital, Feb 12