QL: Mixed Performance and Cautious Outlook for Leading Agro-Food Player

PublicInvest Research observes a mixed financial performance, with core earnings for the second quarter of fiscal year 2026 (2QFY26) seeing a year-on-year decline, though the first half (1HFY26) results largely met expectations. The investment bank has adjusted its earnings forecast lower for FY26-28F, citing persistent operational challenges, particularly within its Marine Product Manufacturing (MPM) and Convenience Store Chain (CVS) segments. Consequently, PublicInvest Research has downgraded its rating to Neutral.

Performance Review

For 2QFY26, revenue registered a 7.9% year-on-year decrease, settling at RM1.73 billion. Core PATAMI also saw a 9.4% year-on-year reduction to RM116.2 million. This downturn was primarily attributed to weaker performances across the Palm Oil and Clean Energy (POCE), MPM, and CVS segments.

The MPM segment experienced a 10.8% YoY revenue decline due to depressed fishmeal selling prices and lower sales volumes. Meanwhile, the POCE segment’s revenue fell 9.8% YoY, primarily impacted by extremely low crude palm oil (CPO) sales. The CVS segment, despite adding 55 new stores and achieving a 5.1% YoY revenue increase, saw its overall performance hampered by softer consumer sentiment and intensified market competition.

In terms of profitability, core PATAMI was weighed down by margin compression in the MPM segment and lower solar project contribution from POCE. The CVS segment’s pre-tax profit (PBT) also decreased significantly due to weaker average store sales and higher operating expenses.

However, the Integrated Livestock Farming (ILF) segment provided a positive note, with its PBT rising 9.3% YoY. This improvement was bolstered by stronger farming operations in Vietnam, better-than-expected margins from Malaysia’s layer operations, and improved contributions from branded eggs and price adjustments, complemented by lower feed raw material trading prices.

Future Outlook

PublicInvest Research anticipates that earnings growth for FY26 will remain soft, primarily due to ongoing operational challenges in the MPM and CVS segments. While a recovery in selling prices for fishmeal and surimi is expected with higher demand, potential cost pressures from tighter fish supply and Sales and Service Tax (SST) may subdue earnings in the MPM segment. The outlook for the CVS segment remains challenging, marked by rising operational costs and reduced footfall, as its convenience store chains are excluded from government support programs.

Conversely, the ILF segment’s margins are expected to sustain, driven by a recovery in egg prices in Indonesia and Vietnam, alongside lower feed costs. A recovery in POCE’s earnings is also foreseen, propelled by an increase in solar project orders.

Investment Bank’s View

PublicInvest Research has revised its earnings forecast lower by 3-5% for FY26-28F. Given the limited upside potential and the prevailing challenges, the investment bank has downgraded its recommendation to Neutral, with a revised DCF-derived target price of RM4.50.