PETALING JAYA: Earnings of QL Resources Bhd
should come in higher on the back of strong demand for its marine product manufacturing (MPM) segment.
Meanwhile, margin pressure for the group’s integrated livestock farming (ILF) segment is expected to ease due to government subsidies, according to TA Research.
The improving outlook for these two segments would offset the negative outlook for QL’s palm oil and clean energy segment, which it has a presence in via 52%-owned Boilermech Holdings Bhd.
The research firm noted that while Boilermech continued to have a healthy order book, it was facing margin pressures from higher material and logistics costs and the labour shortage.
Declining crude palm oil prices are also anticipated to have an impact on the subsidiary’s bottom line.
After factoring in the improving outlook for the MPM and ILF segments, TA Research said it had adjusted its earnings forecast for financial years 2023-2025 by 2.2%, 0.3% and 0.2%, respectively.
With the full reopening of China (which contributed to around 5% of the segment’s sales pre-pandemic), it expects demand for marine products to remain strong.
Additionally, the price adjustment implemented in July 2022, coupled with the gradual decline in fuel cost would help with easing of margin pressures, said TA Research.
“To illustrate this, the second-quarter financial year 2023 pre-tax margin improved by 6.6%-points to 21.6%. We believe that the pre-tax margin for the segment would hover around 19% to 22% in the coming quarters,” the research firm wrote in a note to clients.
As for the ILF segment, TA Research said government subsidies would help mitigate the cost pressure for Malaysia’s commercial egg production despite the ceiling price for eggs and elevated costs because of the high cost of animal feed.
Taking into account these factors, the research firm has upgraded QL to a “buy” and raised the stock’s target price to RM6.60 per share.
