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Wednesday, July 31, 2019

Affin Hwang maintains Buy on QL Resources, TP at RM8

Wednesday, 31 Jul 20199:12 AM MYT

KUALA LUMPUR: Affin Hwang Capital research expects sustainable earnings growth for QL Resources Bhd with healthy consumer demand fuelling its upstream expansion plans.

"We trim our earnings forecasts to reflect a slower recovery for QL’s palm oil segment and lower tax incentives, but still expect double-digit core earnings growth in FY20, driven by its marine segment and Family Mart operations," it said.

The research house maintained its buy rating on QL with an unchanged target price of RM8.

For the marine products manufacturing segment, Affin Hwang expects record pre-tax profit growth of 20% year-on-year (y-o-y) in FY20 on a higher production output of 6% y-o-y amid higher capacity and a full-year recovery in fish catch.

It also expects the integrated livestock farming segment's pre-tax profit to grow 7% y-o-y off a higher production, stabilising average selling prices as well as the absence of an earnings drag from Family Mart operations in FY20.

"We believe a recovery in local egg prices (+16% Ytd) over FY20 should offset weaker poultry prices (-12% Ytd), which are more susceptible to fluctuations but nonetheless contribute less to the Integrated Livestock Farming (ILF) segment’s earnings," it said.

Affin Hwang forecasts the palm oil activities segment to be subdued in FY20 due to depressed CPO prices although this should be offset by a better maturity profile for QL's Indonesian plantations as well as a positive outlook for its Boilermech associate.

According to the research house, QL has guided for 170 Family Mart stores by end-FY20, which implies a quicker rate of opernings than its previous assumption of 70 stores a year.

"We believe this trajectory could be sustained until FY21E, with QL’s first central kitchen being able to serve 250 stores," it said.


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