While the timing of the subsidy removal is unclear, CGSI Research assumed it will occur in 2025, potentially impacting the group’s FY26 margins.
PETALING JAYA: The government’s egg subsidy rationalisation move could likely be a potential key headwind for QL Resources Bhd
going into 2025.
CGS International (CGSI ) Research in a report said the removal of the egg subsidies could impact the group’s expansion plans.
It estimated that QL Resources’ pretax margins could ease by 0.4% year-on-year to 9.1% in financial year 2026 (FY26), as the egg subsidies are reduced.
The research house also stated that QL Resources’ current valuation, at a lofty 37.5 times price-to-earnings ratio for calendar year 2025, appeared rich, considering the 1.6% forecast dividend yield.
It is time for the company’s valuation premium to ease, CGSI Research added.
The Agriculture and Food Security minister, in October, confirmed that the government was reviewing the 10 sen per egg subsidy on grade A, B and C eggs, which currently costs around RM100mil per month.
“During our channel checks, industry players said they believe the egg subsidy removal is likely to come with a removal of the price ceiling on these eggs, to ensure positive margins and a healthy supply of eggs in the market,” the research house noted.
While the timing of the subsidy removal is unclear, CGSI Research assumed it will occur in 2025, potentially impacting the group’s FY26 margins.
From a macro perspective, the research house remains positive about the Malaysian consumer outlook going into 2025.
“Civil servant salary increases (effective December 2024), minimum wage increases (February 2025), robust macroeconomic activity, increased cash handouts to lower-income households, increased inbound and domestic tourism, and higher crude palm oil prices, all bode well for consumer demand in 2025, in our view,” it added.
Hence, despite QL Resources being well-run, CGSI Research downgraded the stock to a “reduce” call from a “hold”, with an unchanged target price of RM4.40, due to its current rich valuation.
Key upside risks for QL Resources include a prolonged period of egg subsidy period, a steep drop in commodity prices lifting margins, and the successful launch of new earnings growth drivers in its existing business portfolio.
