PETALING JAYA: QL Resources Bhd’s marine product manufacturing (MPM) segment could face some margin compression in the fourth quarter of financial year 2023 (4Q23).
However, the lifting of poultry price controls at the end of June this year should remove further volatility from raw material fluctuations.
A more resilient outlook is expected for FY24 with ongoing growth in its MPM and integrated livestock farming (ILF) segments, thereby offsetting potential weaknesses in its palm oil and clean energy and lacklustre convenience stores (CVS) recovery, said Maybank Investment Bank (Maybank IB) Research.
It has adjusted its assumptions for seasonally low fish catch and higher labour costs in 4Q23 and a sustained recovery of egg average selling prices (ASPs) in Malaysia and Vietnam in FY24-FY25.
That led the research house to revise its FY23, FY24, and FY25 earnings estimates by minus 6%, 1% and 4%, respectively.
Rolling forward valuation, its discounted cash flow target price is raised to RM5.90 a share. With a total shareholder return of 4%, it has a “hold’’ call on the stock.
Based on its channel checks, Maybank IB Research said disruptions from unfavourable weather conditions (no fishing in the Peninsular East Coast during the year-end north-east monsoon season) along with fewer fishing activities during the Chinese New Year period may have resulted in lower fish catch in 4Q23.
This may have also weakened QL’s MPM segmental margins quarter-on-quarter.
Higher labour costs from changes in employment regulations from Jan 1, 2023 and minimum staff working hours may have also impacted earnings, Maybank IB Research added.
Despite ongoing volatility in feed raw material ASPs for corn and soybean, Maybank IB Research believes QL’s cost pass-through mechanism at its ILF segment will be more efficient after egg price controls is lifted from end-June 2023.
Demand supply dynamics will also improve in tandem with stabilised egg ASPs in the medium-term.
Elsewhere, it said QL is still in the process of divesting its palm oil operations in Tawau and Indonesia.
While there are signs of gradual sales improvement in its CVS segment, the research house expects recovery to be slow given that demand has not improved enough for its stores to revert to 24-hour operations yet.