QL Resources 1Q22 profit misses estimates on MCO 3.0

by ANIS HAZIM / pic credit: ANNUAL REPORT

QL RESOURCES Bhd’s financial results missed analyst estimates for the first quarter of 2022 (1Q22), as its net profit dipped to RM42.2 million due to a worse-than-expected third Movement Control Order (MCO 3.0) impact on its integrated livestock farming (ILF) and marine product manufacturing (MPM) segments.

CGS-CIMB Securities Sdn Bhd said the group’s profit is short of its expectations by 16% and 14.8% of Bloomberg consensus for the financial year of 2022 (FY22F).

QL Resources’ 1QFY3/22 revenue rose 26.3% year-on-year (YoY) to RM1.2 billion on higher revenue from palm oil activities (POA) and the ILF segments offset lower sales from the MPM segment by 11.1% YoY.

“Its 1Q22 Ebitda margins declined 3.9% points YoY, due to lower contribution from high-margins segments from MPM, weak selling prices (ILF) and lower economies of scale,” said CGS-CIMB analyst Walter AW.

The analyst said QL Resources showed strong quarter-on-quarter (QoQ) results driven by MPM and POA segments.

“1Q22 core net profit rose 20.3%, despite a marginal increase in revenue (1% QoQ). This was mainly driven by better contribution from the POA segment of RM12.2 million price before tax (PBT) in 1Q21 and core pretax losses of RM5.3 million in 4Q21, thanks to higher crude palm oil (CPO) prices and fresh fruit bunch output,” Walter said.

On a segmental basis, MPM’s revenue and PBT decreased QoQ by 10.8% and 19.3%, respectively due to lower fish landing and lower utilisation rate of its production facility (disruptions from Covid-19 and MCO 3.0).

Meanwhile, its ILF reported an 8.1% QoQ rise in 1Q22 revenue due to higher feed trading business, yet posted a 67.8% QoQ decline in PBT due to weak poultry prices and higher feed cost prices.

Going forward, the analyst expects QL to post stronger QoQ results from 2Q22F onwards.

“This is thanks to better consumer demand post-lifting of lockdown measures, leading to better overall poultry prices, higher economies of scale and better contribution from its Family Mart business,” Walter added.

He also expects better results from the MPM segment on higher fish landing and sales of surimi-based products.

The research house lowers its FY22-24F earnings per share estimates to account for higher feed cost prices and lower demand for ILF and MPM products.

CGS-CIMB kept its ‘Reduce’ call to QL Resources with a lowered target price of RM4.90 based on 41 times calendar year of 2022 price-to-earnings and one standard deviation to its five-year mean.

CGS-CIMB views QL Resources’ valuations are extremely overstretched at this juncture while earnings prospects remain subdued in the near term.