Mr Kenny Yap, Chairman of Qian Hu Corporation Limited has a long held conviction of the resiliency of the ornamental fish business, even during an economic recession. This belief is now proven true as QH reports stable financial results for the 1HFY09. Revenue for 1HFY09 is $46.9 million (+0.6% yoy), net profit is $3.1 million (+10.4% yoy) and EPS for the half year is 0.73 cents. On a quarter basis, revenue is $23.7 million (+0.6% qoq), net profit is $2.6 million (+10.1% qoq) and EPS is 0.39 cents.

Product segments analysis. Revenue make-up remains fairly consistent. Sales of ornamental fish continues to be the biggest contributor at 51% to total revenue, Accessories sales contribute 39% while the plastics segment account for the remaining 11%.

Profit margins. QH has placed conscious emphasis on containing cost in the previous quarter and the result is evident in the improvement of net profit margin from 7.25% in 1QFY09 to 8.58% in 2QFY09. As can be seen from exhibit 4, the accessories and plastic segments have shown general improvement in operating efficiency. The plastics segment has shown significant improvement through cost-saving measures implemented. We expect the accessories segment profitability margin to stay within a range of 5-10%. The new Chennai JV may put some pressure on the margin during the start-up phase. Ornament fish‘s profitability margin has decreased generally compared to FY08. The reason for variability lies in sales of QH self-bred Dragon fish vs externally-sourced Dragon fish. We expect the margin to improve as the breeding facilities in Malaysia becomes productive in 2HFY09 and also the schedule completion of the new ponds in Singapore in another 2-3 months should also add to the profitability. However we expect the Singapore facility to start contributing only in FY10.

Future plans. The focus for QH is to achieve equal revenue contribution from the fish segment and the accessories segment. QH believes there is still huge potential for the accessories segment as it currently exports to only approximately 30 countries compared to more than 80 countries for the fish segment. The execution QH is adopting is through strategic overseas investments. QH has demonstrated its intention through the investment in Arcadia and also the Chennai JV.

Valuation and recommendation. We revised our growth assumptions and forecast a 5-year CAGR of 3%. In our opinion, we classify QH as a stable growth company. We raise our DCF derived fair value from $0.15 to $0.17 which translate to 12x FY09F earnings and 1x FY09F book value. Maintain our Buy recommendation.