Overall, no matter how we dissect Qian Hu’s results base on its 4Q08 alone or taking it on a yearly basis, it became pretty lucid that revenue alone does not paint the correct picture for this niche company.

We do not need to highlight the well documented fact that there is a very challenging business environment out there in 2008. Quite understatedly, we were very excited that Qian Hu actually turns in a set of robust performance that outperforms our FY08 expectation by 11%.

Though sales in FY08 registered a mere 1.5% yoy growth, net profit were up a sterling 22.1% yoy.

The drag in sales came largely on the back of a 9.7% fall in 4Q08 turnover from the Ornamental Fish segment. The decline in revenue was the making from the shortage in supply of Dragon Fish (despite rising demand) and the temporary closure of Bangkok International Airport in Nov 08.

The group’s ability to shore up profitability in all segments from gross to operational to its after tax profit is a testament of sound management and effective control of cost.

We see potential catalysts from its successful expansion into the accessories business and positive contributions from a new farm in 2009.

Company maintains its low gearing and stable cash cycle days. Net gearing inched up from 3.4% as at end FY07 to 7.2% as at end FY08, due to additional bank borrowings to finance its farming facilities in Singapore and Malaysia.

Stock turnover days were up slightly by 3 days to 145 days in FY08, but are expected to fall further in the coming quarters as management spelled out new KPI to improve overall cash conversion days.

Qian Hu trades at 5.4x CY09 P/E and 3.2x EV/EBITDA, which are not lofty given its rather unique business and strong brand name, in our opinion. Previously, we have a target price of S$0.22 by applying 10x CY09 P/E, or the low end of its 6-year P/E band.

We are less optimistic about the speed at which such valuation can be achieve in 12-month’s time. As such, we applied another 30% discount the target multiple, and we derived a new target price of S$0.16 (based on the current 7x CY09 P/E).

Given the 84% upside potential, we reiterate our Buy recommendation.