QL: Investment Bank Sees Future Growth Despite Quarterly Dip, Reaffirms ‘Outperform’ Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading regional surimi producer and second-largest egg producer reported a marginal dip in its third-quarter core PATAMI, coming in at RM120.2 million for 3QFY26, a 4.6% decline year-on-year. Despite this, the cumulative nine-month core PATAMI of RM337 million remained within the investment bank’s expectations, accounting for 74% of their and consensus estimates.
Performance Review
The company’s 3QFY26 revenue saw a slight decrease of 1.1% year-on-year, totaling RM1.8 billion. This marginal decline was primarily influenced by varied performances across its key segments. The Integrated Livestock Farming (ILF) segment experienced lower contributions, with its Profit Before Tax (PBT) falling 3% year-on-year, largely due to the absence of government subsidies for Malaysia’s layer operations and reduced feed raw material trading prices. Similarly, the Palm Oil and Clean Energy (POCE) segment’s PBT declined by 17% year-on-year, impacted by lower solar project contribution following the discontinuation of NEM 3.0, despite a 1% rise in sales driven by higher crude palm oil (CPO) sales tonnage. The Convenience Store Chain (CVS) segment continued to face headwinds, with weaker average store sales and higher operating expenses leading to a significant drop in its PBT margin to 2.3% from 4.2% in the previous year, exacerbated by soft consumer sentiment and intense market competition.
On a brighter note, the Marine Product Manufacturing (MPM) segment demonstrated resilience. While its revenue remained flat, the segment’s PBT grew 2% year-on-year, fueled by improved margins from fishing activities and better performance from fishmeal and surimi production.
Future Outlook
Looking ahead, the investment bank anticipates a sequential strengthening in earnings. This positive outlook is underpinned by several key factors. A recovery in fishing activities, coupled with improved surimi selling prices and demand, is expected to boost the MPM segment. Furthermore, the ILF segment is poised for margin expansion, driven by the recovery in egg prices in Malaysia and Indonesia, along with potential reductions in feed costs. The POCE segment is projected to benefit from the increasing demand for renewable energy from data centers and industrial growth. However, the CVS segment is expected to remain challenging, facing stiff competition within the F&B market and the exclusion of its participation in the SARA programme.
Investment Bank’s Stance
The investment bank has upgraded its call on the company to “Outperform” with an unchanged target price of RM4.50. The analysts believe the current valuation, trading at approximately 30 times price-to-earnings (PE), is attractive, positioning close to its -1 standard deviation of its five-year average forward PE.
