Period  3Q14/9M14

Actual vs. Expectations 3Q13 earnings were within expectations with 9M14 net profit to RM121.3m accounting for 74.8% and 75.4% of our as well as market consensus full-year estimates, respectively.

Dividends  No dividends were declared in the quarter.

Key Results Highlights YoY, 3Q14 revenue leapt by 24.0%, underpinned by higher sales recorded across all segments, led by integrated livestock farming (ILF; +30.1% YoY). Meanwhile, PBT improved further by 45.5% YoY on the back of margin expansion of 2.1ppt to 5.3%, coming from ILF division as well as higher contribution from both marine product manufacturing (MLM; +31.3% YoY) and ILF (>+100.0% YoY). The better margin registered in ILF was mainly attributed by the Peninsular Malaysia Poultry operations.

 QoQ, 3Q14 revenue grew by 10.0% driven by higher sales recorded in MPM (+9.0% QoQ), POA (+11.8% QoQ) and ILF (+10.1% QoQ). Meanwhile, PBT rose by 12.0% QoQ bolstered by the PBT contribution from MPM (+13.8% QoQ) while a turnaround in POA from earlier losses helped mitigated the slight decline in ILF (-8.4% QoQ).

 YTD, 9M14 revenue was higher by 16.8% YoY supported by the better sales from ILF (+20.4% YoY), MPM (+14.6% YoY) and palm oil activities (POA; +5.9%, YoY). PBT improved by 19.6% YoY on the higher margin recorded in ILF (5.7% in 9M14 vs. 5.4% in 9M13) and MPM (19.0% in 9M14 vs. 16.9% in 9M13). However, this was compressed by significant losses incurred in POA division (-73.8 YoY) from Indonesia’s plantation operations during 1H14. The strong sales growth registered in ILF was mainly due to lower feed costs and better farm produce prices. Meanwhile, improvement in MPM was due to better surimi-based products and fishmeal contributions.

Outlook  We have a neutral-to-positive stance on QL given: (i) the continuous improvement in MPM results with margins sustaining above the 5-year average of 14% in the recent quarters, and (ii) higher-than-expected CPO price and higher FFB volume processed.

Change to Forecasts We are maintaining our FY14E and FY15E net profits at RM162.2m and RM195.9m, respectively.

Rating Maintain OUTPERFORM

Valuation  Target price is maintained at RM3.32 based on an unchanged CY15 PER of 20.2x.

Risks to Our Call  The global economic and climatic uncertainties.

Source: Kenanga