PETALING JAYA: QL Resources Bhd
’s near-term outlook looks positive, given the narrative that lower costs would outweigh slower revenue growth to further drive profit growth.
CGS International (CGSI) Research said, “This is especially true for its marine products manufacturing and integrated livestock farming businesses, which made up 82% of financial year 2024’s (FY24) core pre-tax profits.”
The research house noted QL Resources management in a recent call had acknowledged that the likely egg subsidy and price ceiling removal would negatively impact margins, but “their expected timeframe for the removal appears to be later than our previous assumption of 2Q24”.
The management also expects the increased cash handouts to lower income households, EPF Account 3 withdrawals and upcoming 2025 civil servant salary increases being positive for consumer spending.
Hence, these developments would accelerate the convenience store openings to 60 to 90 stores in FY25 compared with 38 in FY24 with a focus on the East Coast region, said CGSI Research.
The research house has also raised QL Resources’ core net profit forecast for FY25, FY26 and FY27 by 10.7%,1.4% and 4.4%, respectively. “This is as we factor in the later removal of egg subsidies, price ceiling in Malaysia, accelerated store openings and higher contributions from its clean energy division,” it added.
Nonetheless, CGSI Research still expects pre-tax profit margins, which it forecast to be 9.5% in FY25 – the upper end of its historical range – will ease in FY26 creating a headwind for return on equity expansion and valuation re-rating.
The research house has maintained a “hold” call on QL Resources with a price target of RM6.60 as a result of its forecast adjustments. Furthermore, QL’s valuations are at a premium to its pre-2018 levels, before the market switched to a more defensive stance.
As better government policy direction pushes investor focus back towards growth, CGSI Research said it believes the valuation upside is likely to be capped.
