QL ... Mar10

• 3QFY10 results were above our expectations. Cumulative net profit for 9 months was RM79.7m or 86% of our full year forecast of RM92.6m.

• On a y-o-y basis, 3QFY10 revenue and net profit rose 15.0% and 32% respectively. EBITDA margin improved to 14.5% from 12.9% in the previous year. Q-o-Q, 3QFY10 revenue increased by 9.8% whilst net profit rose 20.5%, and this is attributable to the overall improvement in margins.

• The Marine Products Division performed much better q-o-q this year, when compared to the previous year. Despite the earlier onset of the monsoon, revenue increased by 1.1% (q-o-q), whereas last year it declined 6.6% q-o-q. Further, pre-tax margin in 3QFY10 was 17.8% compared to 18.2% in 2QFY10 and 13.6% in 3QFY09. The improvements were attributable to both higher sales volumes and selling prices.

• For the 9 months period the Palm Oil Division still remained depressed when compared to the previous year. Q-o-Q, pretax contribution tripled, from RM1.1m to RM3.3m as volume of FFB processed was much higher.

• The Integrated Livestock & Farming Division has been the consistent high achiever of the year, with constantly improving margins. 3QFY10 revenue was 5% higher y-o-y, and 5.3% higher q-o-q whilst pretax margin was at 10% during the quarter, 8.4% in the preceding quarter and 7.5% a year ago. Both poultry and raw material trading increase their margins.

Outlook
With better than expected performance at the Marine Products Division we are upgrading our FY2010 forecast to revenue of RM1,356m and net profit of RM101m.

QL’s profitability is expected to reflect the continuing improvement in operational efficiencies that has so far distinguished the management.

Further, the continuing improvement in the short term financial position as evidenced by the rising debt service cover, as well as in other financial ratios is reflective of an astute management of leverage.

We therefore believe that QL’s profit growth would continue to outperform its revenue growth.

Based on our forecast and maintaining our fair valuation of 2010PE at 13.5x, the target price is RM4.13
sen.