Period  4Q14/FY14

Actual vs. Expectations The 4Q14 results came in within expectations with net profit of RM38.6m, bringing FY14 net profit to RM159.9m which was 1% below both our as well as consensus estimates.

Dividends  A first and final single tier dividend of 3.5 sen was declared, higher than our 3.0 sen assumption.

Key Results Highlights The 4Q14 revenue declined 8.8% QoQ to RM606.9m which was due to the lower sales recorded in marine product manufacturing (“MPM,” -12.6% QoQ) and integrated live farming (“ILF”, -10.5%). Thus, PBT and PAT contracted by 20.1% and 13.5%, respectively, largely due to lower sales recorded in MPM division.

 YoY, 4Q14 revenue registered a 7.7% growth on the back of better sales across the three divisions - MPM (+8.8% YoY), palm oil activities (“POA”, +27.9%) and ILF (+3.2% YoY). Meanwhile, PBT rose by 12.3% YoY bolstered by the PBT contribution from POA (+61.9% QoQ) on improved contribution from its Indonesian plantation operations coupled with higher CPO price and higher FFB processed.

 For FY14, revenue rose 14.4% YoY, which was supported by the better sales from MPM (+13.2% YoY), POA (+11.2% YoY) and ILF (+15.7%, YoY). PBT leapt 17.8% YoY on the higher margin recorded in MPM (17.6% in FY14 vs. 15.9% in FY13) and ILF (5.7% in FY14 vs. 5.5% in FY13). However, this was compressed by significant losses incurred in POA division (-36.8 YoY) from its Indonesia’s plantation operations during 1H14. The strong sales growth registered in ILF was mainly due to higher volume of feed raw materials sold and better farm produce prices. Meanwhile, improvement in MPM was due to higher contribution from deep-sea fishing, surimi-based products and fishmeal operations.

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 POA segment in 2H14, which should further contribute positively to the group in the coming financial year.

Change to Forecasts No changes to our FY15E estimates and at the same time we introduce our FY16E forecasts where net profit is expected to grow by 10.3%. Our FY16E assumptions include: (i) increase in capacity in MLM division and (ii) higher FFB yield per matured hectare expected from Indonesia plantation in POA division.

Rating Upgraded to OUTPERFORM from MARKET PERFORM

 We are positive on the company future growth prospect, especially in MLM and POA division. Moreover, QL’s main business is more focused towards non-discretionary business, which is relatively resilient to the challenging business environment.

Valuation  Our new TP of RM3.51 is based on a slightly higher PER of 20.6x as compared to the previous PER of 20.2x as the +1SD of 3 years average has shifted higher due to the recent positive share price movement.

Risks to Our Call  The global economic and climatic uncertainties.

Source: Kenanga