Period  3Q13/9M13

Actual vs. Expectations  As feared earlier, the 9M13 net profit (NP) of RM99.7m came in below estimates, making up 66% and 64% of the street's estimate and our forecast of RM151m and RM156m, respectively.

Dividends  No dividend was declared in the quarter as expected.

Key Result Highlights    QoQ, the 3Q13 revenue was down by 2.8%, caused by the lower sales recorded in integrated livestock farming ("ILF," -9.0% QoQ), which offset the increase sales in palm oil activities ("POA," +21.5% QoQ). The PBT declined by a higher 15.2%, largely dragged down by the margin compression in the ILF division (-2.4ppt QoQ).

 YoY, the 9M13 revenue improved 7.6% on the back of better sales from marine product manufacturing ("MPM, +2.7% YoY), ILF (+8.7% YoY) and POA (+11.9% YoY). Nevertheless, the PBT dropped by 8.4% as feared earlier due to a 58.6% decline in ILF's PBT. This was mainly due to a lower raw material trade margin and lower farming margins arising from a steep increase in global feed cost due to the drought in USA.

 For the YTD, due to a more challenging operating environment, the 9M13 PBT was pretty flat with only a 0.2% growth YoY despite a 9.3% growth in sales. The slower PBT growth compared with the sales growth was due mainly to the margin decline in ILF (-3.2ppt YoY to 5.4%), which was fortunately offset by the rise in the margin at MPM (+3.3ppt YoY to 16.9%). There was a strong PBT growth rate registered in MPM (+44.6% YoY) due mainly to the higher contribution and better economic of scale from its surimi and fishmeal operations in both Malaysia and Indonesia.

Outlook  We remain positive on QL as it has always delivered earnings growth and expansion plans, which will help its businesses to achieve better economies of scale.

Change to Forecasts   Nonetheless, we have cut our FY13-14E NPs by 11%-13% to RM138m-RM157m after lowering the earnings of POA and ILF due to the weaker results (see overleaf for further details).

Rating   Maintain OUTPERFORM

Valuation  As we are rolling our valuation to FY14, we have arrived at a new TP of RM3.40 (from RM3.50 previously) based on an unchanged FD FY14E PER of 18.5x.

Risks  The global economic and weather uncertainties.

Source: Kenanga