KUALA LUMPUR (Feb 27): QL Resources Bhd (KL:QL) presents a fresh appeal to investors following a recent decline in its share price, which has prompted CIMB Securities to upgrade the stock to 'buy' from 'hold'.
The brokerage believes the market has more than priced in the company's near-term earnings softness, despite the group posting weaker results for the first nine months of its fiscal year.
This valuation gap, driven by the share price weakness, has created an attractive entry point for investors, in CIMB’s view. The upgrade signals confidence that the stock's current level compensates for any short-term financial headwinds.
"We also think valuation — at 31.7 times 1-year forward P/E (price-earnings) — is unjustified despite a more subdued FY2025-FY2028 core net profit CAGR (coumpound annual growth rate) of about 3%, reflecting softer demand conditions and persistent cost pressures across key segments.
"We believe the stock should trade at least on a par with its five-year mean, given its diversified business model, relatively recession-proof demand for its goods, and strong management track record," said CIMB, assigning a RM4.60 target price to the stock in its note, implying a 15% upside.
In a note on Friday, CIMB noted QL’s core net profit for the nine months ended Dec 31, 2025 (9MFY2026) declined 6.8% year-on-year (y-o-y) to RM337 million, accounting for about 77% of its full-year forecast but coming in below Bloomberg consensus expectations of 74%.
Revenue for the nine-month period slipped 1.3% y-o-y to RM5.24 billion, mainly due to lower contributions from the marine product manufacturing (MPM) and integrated livestock farming (ILF) segments.
As a result, the Ebitda margin eased 0.6 percentage point to 14.0%, reflecting what CIMB described as a “less-favourable mix (MPM is structurally higher-margin) and elevated cost pressures”. Core earnings were also “further weighed down by a 7.2% y-o-y increase in depreciation”.
For 3QFY2026, core net profit fell 4.6% y-o-y to RM120.2 million, though it rose 3.4% quarter-on-quarter (q-o-q).
Segmentally, MPM revenue was broadly flat, inching up 0.3% y-o-y, while pre-tax profit rose 2.2% on stronger margins from fishing activities and a turnaround in aquaculture.
ILF revenue and pre-tax profit declined 2.2% and 2.8% y-o-y respectively, dragged by lower layer egg prices, weaker feed raw material trading and the absence of cost subsidies for Malaysian layer operations, although this was partly offset by improved performance in Vietnam and Indonesia.
The palm oil and clean energy (POCE) division saw revenue edge up 0.5% y-o-y, supported by higher crude palm oil tonnage delivered and stronger project delivery at Boilermech, but pre-tax profit dropped 16.9% due to margin compression on certain projects and lower solar revenue following the discontinuation of the Net Energy Metering scheme.
Meanwhile, the convenience store (CVS) segment recorded a 45.4% y-o-y fall in pre-tax profit, as flattish revenue with higher store counts offset by lower average sales per store — combined with higher operating costs and squeezed margins.
Looking ahead, CIMB expects QL’s 4QFY2026 earnings to be weaker q-o-q, noting that the fourth quarter is typically seasonally softer for the group, particularly for MPM.
“We expect 4QFY2026 earnings to be weaker q-o-q (but higher y-o-y), with divergent trends across segments,” it said, adding that CVS and POCE earnings are likely to remain soft amid continued demand pressure and elevated operating costs.
Despite the subdued near-term outlook, CIMB maintained its sum-of-parts-based target price of RM4.60 and upgraded the stock, arguing that valuation has become compelling after a 20% share price retracement over the past 12 months.
The stock is currently trading at about 31.7 times one-year forward price-earnings, near 0.75 standard deviation below its five- and 10-year mean of 37.5 times and 39.5 times respectively.
CIMB expects QL to return to positive earnings growth of about 6% y-o-y in FY2026, driven mainly by recovery in its MPM and POCE segments.