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NRA Capital Pte Ltd

Written by: Jacky Lee

Monday 21 Oct 2013

Qian Hu – 3Q13 results review

More own-brand innovative products lined up

Special dividend of 0.5 Singapore cents will be paid on 21 November 2013

Qian Hu posts net profit of $88,000 in 3Q13 as compare to net loss of S$0.8m (excluding exceptional item) on recovery of Dragon Fish business and strong sales of own-brand accessories.

Operating profit from Ornamental Fish jumped 142% yoy as prices of Dragon Fish stabilised while enjoying higher sales growth in China. The group expects revenue and profitability of its Ornamental Fish segment to increase in the coming quarters. Higher market share of innovative, own-brand products drove operating profit of accessories up 35.4% yoy.

A special dividend of 0.5 Singapore cents per ordinary share (one-tier tax exempt) in relation to the disposal of Kim Kang, which was approved at the Extraordinary General Meeting held on 27 December 2012, will be paid on 21 November 2013.

Kenny Yap, Qian Hu’s Executive Chairman and Managing Director, said: “We are glad that the worst is over for our Dragon Fish business and prices have begun to stabilise. What’s more assuring is the continued robust demand that we are seeing in Northeast Asia, particularly in China, for our Dragon Fish. Our Indonesian hub is also growing nicely and will be an important growth engine for our Ornamental Fish business. What’s equally exciting is our Group’s strategy to leverage on innovation and advanced technology to transform Qian Hu into a next-generation ornamental fish company. We have a strong pipeline of new products that are game-changers for the Group, and we look forward to sharing more about them when we are ready to launch these products. We are doing all this to enable Qian Hu to be even more resilient and sustainable in the long run. Barring any unforeseen circumstances, the Group expects to remain profitable in 4Q2013.”

Valuation:

Qian Hu’s 3Q13 marginal profit of S$88k came in below our S$0.4m net profit estimate due to lower-than-expected sales. Given the recovery was slower than our expectations; we cut our FY13 net profit forecast by 49% but keep our FY14-15 estimates unchanged. As a result, our fair value slipped by 1 ct to S$0.11, still pegged at 1x P/NTA. Given its current share price of S$0.09, we believe the downside risk is limited with 6-8% dividend yield projection, maintain Overweight recommendation.

Qian Hu will be launching 4-5 new own-brand innovative products in the coming months and management believes these new products will further enhance its accessories business segment and expects a positive contribution in FY14.  

 

FYE Dec (S$ m)                                        3Q13 3Q12 yoy %  2Q13 QoQ %  Prev.  
      chg   chg 3Q13F Comments
Revenue 20.5 21.7 (5) 21.2 (3) 22.4 9% below expectation
Operating costs  (19.7) (21.3) (7) (20.7) (5) (21.4) Below, lower-than-expected sales
EBITDA  0.8 0.4 104 0.5 54 1.0 Below, lower-than-expected sales
EBITDA margin (%) 3.9 1.8   2.4 59 4.6 0.7% pts below expectation
Depn & amort. (0.5) (0.7) (27) (0.5) (2) (0.4) In line
EBIT  0.3 (0.3) 176 (0.0) 993 0.6 Below, lower-than-expected sales
Interest expense  (0.1) (0.1) (44) (0.1) (2) (0.1) In line
Interest & invt inc  0.1 (0.2) 149 0.4 (69) 0.1 In line
Associates' contrib (0.0) (0.0) 21 (0.0) 67 (0.0) In line
Exceptionals 0.0 (9.3) nm  0.0 0 0.0  
Pretax profit 0.3 (10.0) 103 0.3 9 0.6 Below, lower-than-expected sales
Tax  (0.1) (0.1) (9) (0.1) (2) (0.1) In line
Tax rate (%) 39.0 (1.2)   43.2 (10) 18.0  
Minority interests (0.1) 0.0 (1,660) (0.1) 32 (0.1)  
Net profit  0.1 (10.1) 101 0.1 6 0.4 79% below expectation
EPS (cts) 0.0 (2.2) 101 0.0 6 0.1  

 

Key Financial Data          
(S$ m, FYE Dec) 2011 2012 2013F 2014F 2015F
Sales 88.3 84.4 84.6 88.2 90.2
Gross Profit 27.3 25.4 25.4 28.7 30.2
Net Profit 3.5 (9.1) 0.7 2.9 3.5
EPS (cents) 0.8 (2.0) 0.1 0.6 0.8
EPS growth (%) (17.7) (363.6) 107.2 335.2 20.9
PER (x) 11.8 nm  61.7 14.2 11.7
NAV/share (cents) 16.2 11.9 10.9 11.3 11.4
DPS (cents) 0.6 0.2 0.7 0.5 0.6
Div Yield (%) 6.7 2.2 7.8 5.6 6.7

Source: Company, NRA Capital estimates


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