Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit of RM182.2m (+13.9%) was within our expectation by accounting for 95.9% of in-house forecast but below consensus’ by matching only 94.3% of the streets’ estimates.

Core net profit was derived by excluding the fair value gain on reclassification of associate to Available-For-Sale (AFS) investment amounting to RM8.4m. The reclassification was due to the absence of QL’s representative on Lay Hong’s board despite the former still holding a 38% stake in the latter.

Dividends

DPS of 4.3 sen (FY14:3.5 sen) was declared, well within our expectation.

Key Results Highlights

YoY, FY15 revenue recorded healthy growth of 10.1% to RM2.7b thanks to growth across all its operating divisions with MPM the most eye-catching segment (+16.5%) due to the robust demand of its surimi-based products. Similarly, core net profit rose 13.9% to RM182.2m, supported by the growth across all divisions while spearheaded by the MPM division which segmental PBT grew 16.5% to RM126.8m due to the reason mentioned above. ILF also registered commendable growth of 14.5% to RM98.3m on the back of higher trading volume of feedstock and favourable egg prices in comparison.

QoQ, 4Q15 revenue declined by 9.7% to RM661.6m which can largely be attributed to seasonality as 3Qs are traditionally the strongest quarters. That resulted in a 31.9% drop in core PBTto RM50.8m with the POA division slumping into losses due to the lower FFB processed in the low crop season in 4Q15. /

Outlook

Moving forward, we expect the MPM division to continue to support the earnings growth, supported by the robust demand on the surimi-based products while the MPM is also poised to benefit from the low feedstock prices on the back of easing commodities prices, namely maize and soybean, as well as the favourable egg prices. As for the POA division, we expect the earnings to stay subdued due to the weak CPO prices.

We continue to like QL for its earnings resilience, undeterred by the weak local consumer sentiment as most of its products are less discretionary in nature. We also like the forecasted double-digit earnings growth in the next two years, underpinned by MPM and ILF vis-a-vis the singledigit growth expected in the other stocks in the consumer space.

Change to Forecasts

We removed the earnings contribution from Lay Hong following the reclassification, resulting in lower FY16E net profit (-2.5%). We also take this opportunity to introduce our FY17 earnings forecast, which represents growth of 11.1%.

Rating

Maintain MARKET PERFORM

Valuation

We lift our Target Price to RM4.19 (from RM3.90) based on 23x PER after rolling over our valuation to CY16 (from FY16). The valuation implied unchanged +1.5 SD over the 5-year mean.

Risks

Lower-than-expected production costs.

Unexpected outbreak of bird-flu or farm diseases.

Source: Kenanga Research - 27 May 2015