I know how to put in the .png file into the timeline and it looks perfect at the preview window after it's being render. But when i try to export it using H.264 format, the watermark become very poor quality. Is there any setting i miss or anything i can do to avoid it?
those image are .png
My guess would be the PNG's have an alpha channel, which H.264 can't handle.
Right click on the PNG's in the bin and under Modify>Interpret Footage, select Ignore Alpha Channel.