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Quality Concrete Holdings

Recommendation: HOLD
Stock Code: 7544 Bloomberg: QC MK Price: MYR1.12 12-Month Target Price: MYR1.25 Date: September 30, 2010

Board: Main Pr ice 30 Day Moving Aver age Pr ice ( MYR)


1.80
Sector: Industrial Products 1.70
1.60

GICS: Materials/Construction Materials 1.50


1.40
Market Value - Total: MYR64.9 mln 1.30
1.20

Summary: Quality Concrete Holdings (Quality Concrete) is 1.10


1.00
a Sarawak-based company with interests in the manufacture 0.90
of ready-mixed concrete, concrete piles, polyethylene (PE)
pipes, timber and quarry products. It is also involved in Vol ume Vol ('000)
1,200
property development.
800

Analyst: Su Peng Ng 400

0
Sep 07 Dec 07 Feb 08 Apr 08 Jun 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09 Aug 09 Oct 09 Dec 09 Feb 10 May 10 Jul 10 Sep 10

Results Review & Earnings Outlook Recommendation & Investment Risks

• Quality Concrete’s 1HFY11 (Jan) results were above our expectations • We maintain our Hold recommendation on Quality Concrete with a
as revenue came in higher than expected. 1HFY11 net profit of higher 12-month target price of MYR1.25 (from MYR1.20). The higher
MYR1.7 mln accounted for 70% of our previous full-year estimate. target price is a result of a higher BVPS after adjustment for the sale of
PPSB.
• The group’s HDPE pipes sales led group’s 1HFY11 revenue growth of
54% YoY. With the government’s focus on improving water supply in • Our target price continues to be based on a P/B relative valuation
Sarawak, 1HFY11 HDPE pipe sales tripled YoY. Other divisions (RMC methodology. We maintain our target P/B multiple at 0.5x (unchanged),
and timber products) also saw improved sales, given the economic which is based on the group’s historical P/B trading average, and apply
recovery. With higher sales, margins for HDPE pipes and timber also it to our estimated FY11 BVPS.
expanded, resulting in a 340% YoY rise in operating margin.
• While Quality Concrete’s earnings is expected to improve with the
• Meanwhile, 2QFY11 revenue was flat (1.1% QoQ) against 1QFY11. impending rollout of more stimulus and Sarawak Corridor of
On a PBT level, 2QFY11 booked in a profit of MYR2.2 mln against Renewable Energy (SCORE) projects, we believe its share price may
MYR0.1 mln in 1QFY11 as improved margins from HDPE pipes and be capped due to its smaller size and relatively high FY11 PER of 17x.
timber divisions boosted profits.
• Risks to our recommendation and target price include the cancelation
• We continue to expect Quality Concrete to perform decently, given the or deferment of major infrastructure projects in Sarawak and higher-
government’s focus on elevating the infrastructure network in than-expected raw material prices.
Sarawak. We adjust our FY11 net profit estimate to incorporate higher
1HFY11 sales and a gain on sale of MYR14.6 mln (for 3QFY11) for
the disposal of Quality Concrete’s wholly owned subsidiary, Protoreka
Perunding Sdn Bhd (PPSB). Our FY11-FY12 net profit estimates are
raised to MYR18.3 mln (from MYR2.4 mln) and MYR4.7 mln (from
MYR2.7 mln) respectively.

Key Stock Statistics Per Share Data


FY Jan. 2010 2011E FY Jan. 2008 2009 2010 2011E
Reported EPS (sen) -3.4 6.4 Book Value (MYR) 2.51 2.44 2.41 2.73
PER (x) NM 17.4 Cash Flow (sen) 7.1 0.2 3.0 38.5
Dividend/Share (sen) 0.0 0.0 Reported Earnings (sen) 0.8 -6.2 -3.4 6.4
NTA/Share (MYR) 2.41 2.73 Dividend (sen) 0.0 0.0 0.0 0.0
Book Value/Share (MYR) 2.41 2.73 Payout Ratio (%) 0.0 0.0 0.0 0.0
No. of Outstanding Shares (mln) 58.0 PER (x) 132.2 NM NM 17.4
52-week Share Price Range (MYR) 0.92 - 1.25 P/Cash Flow (x) 15.8 470.4 36.8 2.9
Major Shareholders: % P/Book Value (x) 0.4 0.5 0.5 0.4
Entrequest Holdings Ltd. 18.1 Dividend Yield (%) 0.0 0.0 0.0 0.0
Cahaya Besi (Sarawak) 15.7 ROE (%) -4.7 -0.4 0.2 2.5
Tiang Ming Sing 14.6 Net Gearing (%) 13.8 14.8 28.2 14.5
* Stock deemed Shariah compliant by the Securities Commission

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Quality Concrete Holdings
Recommendation: HOLD
Stock Code: 7544 Bloomberg: QC MK Price: MYR1.12 12-Month Target Price: MYR1.25 Date: September 30, 2010

Quarterly Performance
FY Jan. / MYR mln 2Q11 2Q10 % Change
Reported Revenue 36.3 24.2 50.1
Reported Operating Profit 2.7 1.4 99.4
Depreciation & Amortization NA NA NA
Net Interest Income / (Expense) -0.4 -0.3 27.4
Reported Pre-tax Profit 2.2 0.3 >100
Reported Net Profit 1.8 0.1 >100
Reported Operating Margin (%) 7.5 5.7 -
Reported Pre-tax Margin (%) 6.1 1.4 -
Reported Net Margin (%) 4.9 0.4 -
Source: Company data

Profit & Loss


FY Jan. / MYR mln 2009 2010 2011E 2012E
Reported Revenue 106.5 105.0 137.0 164.7
Reported Operating Profit 0.6 2.3 6.5 8.1
Depreciation & Amortization -3.7 -3.7 -4.0 -3.7
Net Interest Income / (Expense) 3.5 4.5 5.0 5.9
Reported Pre-tax Profit -3.8 -1.1 19.4 6.3
Effective Tax Rate (%) NM NM 5.0 25.0
Reported Net Profit -3.6 -1.9 18.3 4.7
Reported Operating Margin (%) 0.6 2.2 4.7 4.9
Reported Pre-tax Margin (%) -3.6 -1.1 14.2 3.8
Reported Net Margin (%) -3.4 -1.9 13.4 2.8
Source: Company data, S&P Equity Research

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 2 of 4
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Recommendation and Target Price History P rice (M YR)


Date Recommendation Target Price 1.80
New Hold 1.25
1-Apr-10 Hold 1.20 1.70

31-Dec-09 Buy 1.25 1.60


2-Oct-09 Buy 1.20
31-Mar-09 Hold 1.20 1.50
20-Jun-08 Hold 1.28
1.40

1.30

1.20

1.10

1.00

0.90
Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10

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