Period

3Q16/9M16

Actual vs. Expectations

9M16 net profit of RM153.9m (+7.0%) was within expectation by accounting for 74% and 71% of our in-house forecast and consensus estimate, respectively.

Dividends

None as expected.

Key Results Highlights

YoY,9M16 revenue rose marginally by 2.0% to RM2.1b driven by the robust growth in MPM (Marine Product Manufacturing) division (+16.1%) thanks to higher export sales on the back of the weaker MYR. 9M16 PBT grew 6.8% to RM200.0m, again attributable to the solid performance of MPM division which benefited from the soft commodity prices. As a result, net profit rose 7.0% to RM153.9m.

QoQ, 3Q16 revenue increased by 6.9% to RM738.0m owing to growth in MPM division (13.2%) on seasonality, and 7.1% growth in ILF (Integrated Livestock Farming) division due to the higher sales volume of feedstock. 3Q16 PBT rose 8.3% to RM76.5m due to the higher revenue in MPM and higher CPO price which drove the Palm Oil Activities (POA) division PBT up by 25.7% to RM4.5m. As a result, net profit grew 4.9% to RM57.9m.

Outlook

MPM has continued to be the growth pillar with the consistent and resilience performance driven by robust demand for fishmeal and the weakening of MYR. Meanwhile, the hot weather caused by El Nino has also boosted fish catches in Malaysia. As such, we foresee the division to continue sustaining the earnings growth for QL.

Earnings growth is expected to be healthy at 10.6% and 8.9% over the next two years, underpinned by the defensive nature of its staple food products, which are less vulnerable to the weak consumer sentiment.

Change to Forecasts

We made no changes to our earnings forecasts.

Rating

Downgrade to Underperform from Market Perform

Valuation

No changes to our Target Price of RM4.16 based on unchanged 23x FY17EPER, which is close to +1.5 SD over 5-year mean.

Although we like the company for its proven earnings track record and resilient nature, we think that the valuation (24.9x PER FY17E, close to +2 SD over 5-year mean) appears lofty. Thus, we downgrade our rating to Underperform from Market Perform.

Risks

Lower-than-expected egg prices

Higher-than-expected production costs

Source: Kenanga Research - 26 Feb 2016