Tuesday, March 28, 2006

Qian Hu( Report from UOB Kay Hian)

Qian Hu Corporation: Back to basics?

Qian Hu's FY05 results showed underlying improvement in margins despite a rather static topline performance. Operating margin for the Ornamental Fish division recovered from its low in 2Q05 of 6%-20% in 4Q05. This division was a key contributor to overall improvement in operating margin from 5.3% in FY04 to 6.2% in FY05. We expect only marginal profit contributions from the Accessories division as well as the Plastics division on account of low operating margins and keen price competition. Qian Hu's move downstream into retail outlets is still intact, but this will probably be implemented at a measured pace over a longer term horizon. The stock is currently trading near its fair value of S$0.27 based on a Price/Book multiple of 0.8x. We are of the view that sustained recovery in Ornamental Fish margins will be crucial for a re-rating. Until then, we maintain our HOLD recommendation. (Research Team)

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