QL's  9MFY13  results  were  below  consensus  but  within  our  expectations.  Revenue  grew  by  9.3%  y-o-y  on  higher  revenue  from  the  MPM  and  ILF  segments while  net  profit  eased  slightly  by  0.5%  y-o-y  on  softer  ILF  margins  owing    due  to higher feed raw material cost. We expect this segment to perform better in the next quarter, judging from the recent recovery in egg prices. Maintain BUY, with RM3.52 FV, based on 19x CY13 EPS.

MPM division leads the pack. QL's 9MFY13 revenue rose 9.3% to RM1583.8m while net profit  slipped  marginally  by  0.5%  y-o-y  to  RM99.7m.  We  deem  the  results  in  line,  as  we expect  a  better  performance  for  4Q  due  to  the  recent  recovery  in  egg  prices.  Its  marine product  manufacturing  (MPM)  and  integrated  livestock  farming  (ILF)  divisions  registered decent  topline  growth  y-o-y,  which  offset  the  lower  turnover  generated  by  its  palm  oil activities  (POA)  division.  Meanwhile,  a  higher  contribution  from  its  fishmeal  operations  in Indonesia  and  Malaysia  and  surimi-based  products  in  Malaysia  boosted  MPM  sales  by 16.3% y-o-y. ILF sales jumped 15.6% y-o-y due to higher unit prices of feed raw materials and  new  contribution  from  its  Indonesian  poultry  operations.    POA  revenue,  however, dropped 18.3% y-o-y, pulled down by weak CPO prices (RM2,732 vs RM3,126 y-o-y) and a lower  cumulative  processed  FFB.  Q-o-q  sales  and  earnings  declined  by  2.8%  and  17.6% respectively,  pressured  by  lower  farming  margins  arising  from  higher  feed  cost  and  lower CPO prices.
 
Margins narrow. EBITDA and PBT margins moderated to 12.1% (-40bps y-o-y) and 8.3% -70bps y-o-y) respectively. The higher PBT marginfrom the MPM division (16.9% vs 13.6% y-o-y)  and  POA  (4.6%  vs  4.4%  y-o-y)  was  offset  by  weaker  margins  coming  from  ILF (-320bps  y-o-y).  With  better  egg  prices  in  Peninsular  Malaysia  and  Indonesia  coupled  with stabilizing raw feed material prices, ILF margins should improve in future.

Maintain  BUY.  The group's future growth will mainly be driven by the  expansion  of  its marine-based businesses in Indonesia, as well as  ILF and POA segments. Maintain BUY with FV unchanged at RM3.52.

Source: OSK