• Revenue and expenses see some FX translation effects
• Underlying sales grew
• Core businesses’ profitability improves

3Q15 PATMI up 30% YoY

QAF Limited’s (QAF) 3Q15 results came in within our expectations. Revenue was down 5% YoY to S$243.2m due to FX translation effects, while PATMI rose 30% to S$10.5m. These formed 23% and 21% of our full year estimates for revenue and PATMI, respectively. On a 9M basis, revenue and PATMI formed 71-73% of our full year estimates.

These translation effects are a result of the group’s operations in Australia and Malaysia, whereby the SGD has been stronger vs. AUD and MYR. Without the translation effect, Bakery and Primary Production business segments continued to see growth in sales, underpinned by the launch of new products and higher ASP.

For the trading and logistics business segment (estimated contribution of about 9% of total sales), revenue was marginally lower on a smaller volume of trading activities, while profit was higher due to exports of better margin products.

Operating margin improved

Operating expenses also decreased, especially for the group’s Australian pork producer, Rivalea as well as the Malaysian Bakery operations which were helped by the translation effect. Notably, better product mix and efficiencies helped increase profitability for the group’s Bakery operations in Singapore, Malaysia, Philippines and Australia as well as its pork production side. Overall operating margins improved from 4.4% in 3Q14 to 5.8% this quarter.

Consumption data for core markets still positive

Recall that the group had earlier announced plans to invest in construction of a new plant to meet market demand in the Philippines, with an estimated investment cost of PHP836.2 (~S$25.0m). Staples form a major component of total household spending and this trend should remain through to 2019, according to BMI Research.

Amid broader economic concerns for the group’s core markets such as Malaysia and Australia, underlying sales managed to continue growing. Looking ahead, management expects “satisfactory” profitability for the year. Following minor adjustments to our top-line expectations, we keep our BUY rating with fair value estimate of S$1.27.

Source: OCBC Research - 17 Nov 2015