QL: Mixed Earnings Reflect Margin Pressures, Recovery Expected
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
QL Resources Berhad (QL) reported IQFY26 core earnings of RM100.6 million, surpassing both TA Securities’ and consensus full-year forecasts. Despite this beat, the company experienced a 6.4% year-on-year (YoY) decline in core earnings, largely attributed to widespread margin compression across most segments, even as revenue increased by 6.0% YoY to RM1.7 billion.
Segmental Performance Overview
The Palm Oil & Clean Energy (POCE) segment was a standout performer, with Profit Before Tax (PBT) surging 26.8% YoY to RM18.0 million. This robust performance was driven by the consolidation of Plus Xnergy Holdings, steady progress in BM Greentech’s solar projects, and stable margins in palm oil operations.
Conversely, other segments faced significant headwinds. The Integrated Livestock Farming (ILF) segment saw its PBT fall 8.6% YoY to RM55.4 million, despite a 5.6% YoY revenue increase. This decline was primarily due to lower selling prices and a reduction in government egg subsidies (from 10.0 sen to 5.0 sen per egg), which overshadowed stronger performance in feed raw material trading.
The Marine Products Manufacturing (MPM) segment experienced revenue and PBT drops of 3.0% and 6.0% YoY, respectively. This was attributed to lower fishmeal sales volumes amid intensifying price competition in the international market. Similarly, the Convenience Store Chain (CVS) segment, while achieving a 6.2% YoY revenue increase supported by new store openings, saw its PBT decline 7.9% YoY due to lower average sales per store and higher operating costs.
Operational Efficiencies Drive QoQ Improvement
Despite the mixed YoY performance, the group demonstrated a 7.1% quarter-on-quarter (QoQ) improvement in earnings. This positive shift was primarily fueled by lower input costs in the ILF segment, higher-margin fishing activity in MPM, and enhanced operational efficiency within the CVS segment. These gains helped to offset weaker performance in the POCE segment, which had been impacted by slower project activities and lower Crude Palm Oil (CPO) prices. Overall, the company’s EBIT margin improved by 1 percentage point QoQ to 9.0%.
Future Outlook
TA Securities anticipates sustainable earnings growth for the second half of the year. This optimistic outlook is bolstered by a positive trajectory for the renewable energy business, which is expected to drive POCE segment growth. Additionally, improving sales volumes at Family Mart and continued lower input costs in the MPM segment are expected to contribute positively. While growth in the ILF segment is projected to normalize in 2H due to the absence of government egg subsidies, this is anticipated to be partially mitigated by lower feed costs and higher sales volumes.
Recommendation and Valuation
In light of its analysis, TA Securities has maintained its Hold recommendation for QL Resources Berhad. The investment bank has revised its target price downwards to RM4.53 per share, a reduction from its previous target of RM5.05. This adjustment reflects a revised required rate of return of 6.2% under a Discounted Cash Flow (DCF) valuation model.
