Quality ... Jan10

Standard & Poor's
Results Review & Earnings Outlook

• Quality Concrete’s 9MFY10 (Jan) results exceeded expectations when
net profit of MYR0.8 mln came in above our full-year forecast of
MYR0.4 mln, as a result of a higher-than-expected operating margin.

• 9MFY10 revenue was 9.1% YoY lower, dragged down primarily by its
timber division, which continued to suffer from slow overseas sales. At
the same time, lower demand and higher cost of its ready-mixed
concrete (RMC) division also contributed to its 32.7% YoY decline in
operating profit.

• In contrast, 3QFY10’s QoQ performance was much improved, as
revenue came in 27.9% QoQ higher. The better results can be
attributable to rising sales from its HDPE pipes and property divisions.
In addition, the group managed to dispose of some quoted
investments, which helped boost pretax profit to MYR1.9 mln (from
MYR0.3 mln in 2QFY10).

• We have raised our margin estimates to reflect the improved outlook
of Quality Concrete’s operations. We lift our FY10 and FY11 net profit
forecasts to MYR1.9 mln (from MYR0.4 mln) and MYR2.9 mln (from
MYR1.5 mln). We look for improved performance in FY11 when the
bulk of government stimulus policies are well underway.


Recommendation & Investment Risks

• We maintain our Buy recommendation on Quality Concrete with a
higher 12-month target price of MYR1.25 (from MYR1.20 previously).

• Our target price continues to be based on a P/B relative valuation
methodology. We maintain our target P/B multiple at 0.5x (unchanged),
which is based on the group’s historical P/B trading average, and apply
it to our estimated FY11 (rolled over from FY10) BVPS.

• We believe the worst is over for Quality Concrete, with the impending
rollout of more stimulus and Sarawak Corridor of Renewable Energy
(SCORE) projects over the next six to nine months. As such, we
believe Quality Concrete’s share price may track the improved outlook.

• Risks to our recommendation and target price include the cancelation
or deferment of major infrastructure projects in Sarawak and higherthan-
expected raw material prices.