Qian Hu third quarter profit up 27.7% to $1.2mln

Directors see marginal sales improvements and stronger second half with group revenue up 1.0% to $23mln.

Mainboard-listed integrated ornamental fish service provider Qian Hu Corporation Limited (“Qian Hu”) on Monday reported higher net profit attributable to shareholders for the third quarter ended 30 September, which rose 27.7% to $1.2 million, compared to the preceding second quarter this year, according to a Qian Hu report.

This was boosted by the resumption of supply of its higher-margin, self-bred Dragon Fish which also helped to drive its revenue up marginally by 1.0% to $23.0 million in the latest third quarter.

All of its business segments, typically Ornamental Fish, Accessories and Plastics, reported marginal improvements in revenue contribution quarter-on-quarter (“q-o-q”). Despite the resumption of the supply of self-bred Dragon Fish, the Group’s Ornamental Fish segment posted a 0.1% revenue improvement to $11.3 million largely due to a stronger Singapore dollar which resulted in some of its export customers seeking cheaper alternatives. In addition, the anticipated curbs in government spending in Europe also contributed to the weaker demand from its European markets, which accounts for more than 20% of Qian Hu’s ornamental fish revenue.

The sluggish European economy had similarly affected production orders from its OEM customers for the Group’s Accessories segment which rose marginally by 0.8% to $8.6 million despite positive efforts in exploring more untapped markets with strong growth potential. The Group is utilising the surplus capacity at its Guangzhou plant by producing a range of newly-developed filtration system which employ the brand-new Hydro-Pure technology that is able to improve water quality by as much as 50%. This new product is expected to boost the performance of the Accessories segment when it is fully rolled out within the current financial year. In a bid to hedge against the challenging European market, Qian Hu’s Guangzhou plant will also increase its production for sales to the China domestic market in the coming quarters.

The Group’s Plastics segment continued to generate strong sales, rising 5.1% to $3.0 million.

Profitability

The sales of more higher-margin, self-bred Dragon Fish in 3Q10, coupled with the higher exports and sales of its accessories and plastics products contributed towards the surge of the Group’s net profit, which surged q-o-q by 27.7% to $1.2 million.

3Q10 versus 3Q09 (“y-on-y”)

On a year-on-year basis, the Group posted a decline of 2.6% in revenue to $68.9 million while net profit dipped 24.7% to $3.6 million mainly due to the triple whammy effects of Icelandic volcanic ash over European airspace from April to May this year; FIFA World Cup which dampened demand for ornamental fish and accessories exports, and drought conditions in Malaysia which affected the production of Dragon Fish fry announced in the previous quarter. In addition, more resources had to be deployed to fulfil stricter European Union regulations concerning the export and import of ornamental fish which led the Group to explore other “non-traditional” markets for alternative supply of ornamental fish at a higher cost.

Kenny Yap, Qian Hu’s Executive Chairman and Managing Director, said: “We are glad that the triple whammy impact that we faced in the first half is truly behind us, and are looking forward to a much stronger second half. Our robust and diversified business model enables us to build a resilient balance sheet, and generate and maintain a strong operating cash flow while we continue to reduce bank borrowings in the fourth quarter. We envisage that Qian Hu will remain profitable in the fourth quarter and that the second half of FY2010 will be better than the first half.”

EPS/NAV Per Share

Based on the Group’s latest third quarter results, Qian Hu achieved earnings per share on a fully diluted basis of 0.81 Singapore cents and net assets backing per share of 16.05 Singapore cents as at 30 September 2010.