QL Resources bets on FamilyMart for earnings growth

PETALING JAYA: QL Resources Bhd’s strategy to venture into FamilyMart last year seems to be seeing some promising signs that could support the poultry player’s long-term earnings growth, said RHB Research.

Being QL’s first foray into convenience store franchising, the research house said QL had somewhat turned it into a scalable avenue, with a total of 10 stores expected to open their doors by the end of this year and 300 more in five years to come.

Since QL inked a 20-year franchise deal with Japan-based FamilyMart Co Ltd last April to bring the business into the Malaysian market, four stores have been opened so far.

While valuations were not compelling enough to justify an upgrade, RHB Research has kept a ‘neutral’ call on the stock with a higher target price of RM4.33 from RM4.03 previously.

“With existing operating divisions having limited room to expand over the longer term, the convenience store venture could provide long-term earnings sustainability,” said RHB Research, adding that the execution of business could be challenging since it required intensive management effort and expertise.

Despite the volatile market, QL has achieved 16 years of interrupted earnings growth since its listing in 2000.

Its second-quarter 2017 net profit jumped 19.9% quarter-on-quarter on the back of a 9% topline growth.

“The weakening ringgit has little impact on the company, as there is a natural hedge from its US dollar-denominated purchasing in integrated livestock farming (ILF), and this was offset further by the US dollar-denominated export sales in marine product manufacturing (MPM),” noted RHB. QL’s three core business segments include ILF, MPM and palm oil activities.

On that note, RHB Research said it expects QL to have a sustainable growth momentum in the third quarter of financial year 2017 (FY17), as this was seasonally the strongest before some earnings moderation in the fourth quarter.

“On a full-year basis, we forecast a 6.3% net profit growth at RM204.3mil, driven by recovery in ILF due to improvements in farm productivity and favourable egg prices,” it said, trimming the FY17 ending March 31 to FY19 forecast earnings by 9%, 10% and 8%, respectively, after fine-tuning margin assumptions.