PETALING JAYA: Affin Hwang Investment Bank Research believes that the long-term earnings outlook for QL Resources Bhd
remains intact despite concerns over its impending exclusion from the FBM KLCI.
“While index exclusion may result in short-term outflows from passive funds, historical trends suggest that the share price performance ultimately reflects underlying fundamentals over the longer term.
“In our view, QL’s fundamentals remain intact, supported by growing demand for convenient and protein-based products.
“Also, the upcoming QL Innofood Park (Phase 1 targeted for mid-2027) is expected to ease current capacity constraints and support future earnings growth,” it said.
The research house has upgraded QL to a “buy” with an unchanged target price of RM4, arguing that the recent share price weakness has created a fresh entry point for investors.
It said QL’s recent decline – about 9% over the past week – was largely driven by market concerns that the company will be removed from the benchmark index following the listing of Sunway Healthcare Holdings Bhd, whose market capitalisation now exceeds QL’s and qualifies it for inclusion under FTSE Russell’s index rules.
The reshuffling is expected to take effect on March 25.
However, Affin Hwang believes the selldown is excessive, noting that historical precedents show index exclusions typically trigger only short-term passive fund outflows, while medium to long-term share price performance remains tied to earnings fundamentals.
It pointed out that previously excluded stocks such as Hong Leong Financial Group Bhd, Westports Holdings Bhd and AMMB Holdings Bhd later recovered and traded near multi-year highs once earnings momentum remained intact.
Affin Hwang said the Hutan Melintang facility, which broke ground in January this year after several years of delay, is expected to significantly expand QL’s marine products manufacturing capacity.
Phase one, targeted for completion by mid-2027, will add about 15,000 tonnes annually, while the broader project is designed to raise total capacity in stages from 50,000 tonnes to 180,000 tonnes, a 2.5-fold increase over time.
The research house said the expansion should ease current supply bottlenecks in QL’s marine products segment, where production facilities have been operating near full utilisation, and enable the group to broaden offerings beyond surimi-based products into soy, chicken and flour-based convenience foods for export and domestic markets.
Another positive development highlighted in the report is the resolution of QL’s long-running dispute with its Indonesian plantation partner.
The group has agreed to acquire the remaining 25.5% stake in PT Pipit Mutiara Indah for about US$14mil (RM54.6mil), giving it full control of the plantation asset and paving the way for a possible divestment.
Affin Hwang said such a disposal could improve returns, as the plantation division has historically delivered weaker profitability and diluted group return on equity (ROE).
“A potential divestment could improve the group’s ROE and capital efficiency,” it said.
Near-term earnings may remain muted, particularly in the fourth quarter ending March 2026, due to monsoon-related seasonal weakness in the marine products segment and softer demand in convenience store operations during Ramadan.
The research house expected longer-term earnings growth to remain resilient, forecasting net profit of RM431.3mil for financial year 2026 (FY26), before rising to RM439.4mil in FY27 and RM465.8mil in FY28.
Raw material costs remain a watchpoint, especially corn and soybean prices amid geopolitical tensions, but Affin Hwang said margin risks are manageable for now as poultry producers have more flexibility to pass through higher feed costs following the removal of egg price controls.
