Period  2Q15/1H15

Actual vs. Expectations  1H15 net profit of RM88.5m (+14.7%) accounted for 46.6% of our forecast and 45.7% of the streets’. Nevertheless, in view of the seasonally stronger 3Q ahead, we consider the result as within expectations.

Dividends  No dividend was declared, as expected.

Key Results Highlights

 YoY, 1H15 revenue grew 10.6% to RM1310.1b, supported by healthy growth across all 3 operating divisions. Meanwhile, reported PBT was 16% higher, mainly owing to the Palm Oil Activities (POA) division, which managed to reverse from LBT of RM1.1m to PBT of RM9.6m on the back of higher FFB production as well as narrowed losses from Indonesian operations.

 QoQ, revenue growth was flattish with the lower CPO price (-14%) and lower FFB production dragging down the contribution from the POA division by 20%. However, PBT leapt 24% to RM62.3m thanks to the improved farming margin of the Integrated Livestock Farming (ILF) division, aided by the strong egg prices in Peninsular Malaysia as well as higher demand and production in Vietnam.

Outlook  1H15 numbers were encouraging with steady growth seen across all division. Stronger 3Q is anticipated with the ILF well supported by the strong egg prices and the Marine Product Manufacturing (MPM) backed by robust demand of the surimi-based products and also further helped by the shrimp farming in Sabah, which is expected to contribute c.RM4m to the division in FY15.

 We maintain our positive stance on QL for the resilient and non-discretionary nature of its products, which will be minimally impacted by the soft consumer sentiments. Meanwhile, we also like QL for its sustainable earnings growth with 18.8% and 13.3% projected growth in FY15E and FY16E, respectively.

Change to Forecasts We made no changes to our earnings forecasts.

Rating Maintain OUTPERFORM

Valuation  We upgrade our Target Price to RM3.86 (from RM3.71) after updating QL’s PER band. We ascribed a higher PER of 22.7x PER (unchanged +1.5SD 3-year mean) to its CY15E EPS of 17sen to be in line with the latest multiples of QL’s 3-year historical forward mean PER.

Risks to Our Call Lower-than-expected CPO prices

 Global economic and climatic uncertainties.

Source: Kenanga