Period     4Q13/12M13

Actual vs.  Expectations    The FY13 net profit (NP) of RM131.8m was broadly within estimates, making up 94% and 95% of the street’s estimate and our forecast of RM140m and RM138m respectively.

Dividends    A final single tier dividend of 4.5sen was declared, which was about 33% higher than the last financial year as the company has just changed its dividend system to the single tier system.

Key Result Highlights    QoQ, the 4Q13 revenue was up by 5.0% due to the higher sales recorded in integrated livestock farming (“ILF,” 12.9% QoQ), which offset the decline in sales in palm oil activities (“POA,” -15.3% QoQ). The PBT and PAT improved marginally by 3.5% and 1.7% respectively largely boosted by the recovery of the ILF division, which saw a 2.7ppt margin expansion, mainly from a higher raw material trade margin and a recovery in its farming margins.

YoY, the 4Q13 revenue registered a 13.1% growth on the back of better sales from marine product manufacturing (“MPM, +12.5% YoY), ILF (+17.9% YoY), which cushioned the 5.0% decline in sales in POA. Nevertheless, the PBT dropped marginally by 0.4% due to the hiccup in its ILF segment, where the PBT was down by 25.2% YoY offset fortunately by the higher PBT numbers from MPM (+28.7%) and POA (+306.5%). The decline in ILF was mainly due to its lower farming margins arising from a steep increase in the global feed cost due to the drought in USA. 

For the full FY13, due to the more challenging operating environment, FY13 PBT was pretty flat with only a 0.1% growth YoY despite a 10.3% growth in sales. The flattish PBT growth was due mainly to the ILF segment suffering a margin compression of 3.3ppt YoY to 5.5%, which was fortunately offset by the rise in the margins at MPM (+2.9ppt YoY to 15.9%) and POA (+1.1ppt YoY to 4.8%). There was a strong PBT growth rate registered in MPM (+41.1% 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. Furthermore, we have seen a recovery in its ILF segment in this quarter, which should further contribute positively to the group.

Change to Forecasts   We are maintaining our FY14E NP at RM157.1m.

Rating  Downgraded to MARKET PERFORM

Valuation     Maintained our TP of RM3.40 based on an unchanged FD FY14E PER of 18.5x. Given the limited upside, we are downgrading the stock to a MARKET PERFORM rating. 

Risks    The global economic and weather uncertainties.

Source: Kenanga