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3Q 2018 passive income (non-REITs): QAF.

Monday, October 1, 2018

In 3Q 2018, I also received questions from readers on QAF and they were similar to this comment from 9 August 2018:

Reader said...

at the current price weakness and offering a dividend yield of almost 6%, will u still considering nibbling??



AK said...

QAF is now trading at a discount to NAV and there is also some insider buying activity.


I would buy some if I weren't already invested and if I didn't have other investments that are tempting me to buy more as well. ;)








Revenue and earnings have been declining at QAF as they face rather challenging conditions.

They are spending more on advertising to defend their bakery business while their pork business in Australia continues to face oversupply pressure.

Having said this, QAF is rather conservative and has a pretty strong balance sheet.

Although I feel that QAF is still able to sustain a DPS of 4c or even 5c based on the strength of their balance sheet while waiting for improvement, I am prepared for a lower DPS which is probably a prudent thing to have.





Although tempted to add to my investment in QAF, with limited resources, I decided that other investment opportunities in many ways were more attractive in 3Q 2018.

For example, both from an earnings and relative dividend sustainability perspective, Centurion is more attractive.

Another example, from a discount to NAV and prospective dividend yield perspective, Accordia Golf Trust is much more attractive.


However, if Mr. Market is to become even more pessimistic about QAF, all else being equal, I might buy some.




10 comments:

Laurence said...

Quote.
However, if Mr. Market is to become even more pessimistic about QAF, all else being equal, I might buy some.
Unquote.


I added some last week to drastically average down the PPS of my holding.
With AK as "substantial" shareholder gives me Peace of Mind which is Priceless. :)

jalan Jalan said...

Hi AK,

The company is now managed by Andree Halim's son, Li Kejian and the lawyer Goh Kian Hwee jointly. Not sure why would they want to manage the company jointly? Is it because the dad has no confidence in his son to run it by himself?


You mentioned that they have strong balance sheet but from their latest Q2 results, their Cash levels has dropped to 74 million and they now have more debt than cash on hand. So why do you still say they have a strong balance sheet?


Their 1H EPS is really bad and I wonder if they can maintain their dividend payment of 0.5 cents if Rivalea continues to be affected by low pork prices. It seems like the oversupply situation is quite bad in Australia.


https://www.pigprogress.net/World-of-Pigs1/Articles/2018/6/Australians-urged-to-eat-more-pork-to-save-the-pig-industry-295602E/

http://www.abc.net.au/news/rural/2018-05-26/pig-farming-in-crisis-amid-ongoing-price-crash/9799644

The revenue is declining revenue and they can't seem to be able to control the operating expenses. Doesn't look good in my opinion.

What are your thoughts, AK?

AK71 said...

Hi Laurence,

I hope it doesn't disturb your peace of mind but QAF really isn't that substantial an investment for me and that gives me peace of mind. ;)

AK71 said...

Hi JJ,

Maybe I should have said that the balance sheet is still "relatively" strong. ;)

Like I said in the blog, a reduction in DPS would be prudent until the pork oversupply situation in Australia improves.

In terms of expenses, a big chunk is due to more aggressive A&P which can be reduced at will.

What do I think?

Like I said in the blog, there were more attractive investments than QAF in 3Q 2018 and even now.

So, no reason for me to add unless QAF's share price sinks much lower.

Laurence said...

:(


Quote.
I hope it doesn't disturb your peace of mind but QAF really isn't that substantial an investment for me and that gives me peace of mind. ;)
Unquote.

AK71 said...

Hi Laurence,

Yes, it is important to have a plan, your own plan. :)

AK71 said...

Reader says...
Can u talk to yourself on QAF of its latest quarter results & wththr the dividend payout will be affected. Also the price is good to buy? Appreciate if can review.. TQ


AK says...
There isn't anything new to say really.
We should be prepared for a lower DPS.

AK71 said...

Sau Yee Fong says...

QAF is trading at 73% of NAV ( 66 cents vs 89.2 cents) now.

It used to trade at a premium to NAV.

But like AK said, be prepared for lower DPS - maybe 3 cents ?

This would imply a yield of 4.5%. Does not sound very attractive.

If QAF drops to 60 cents, a lower DPU of 3 cents would imply a 5% yield, that sounds better.

Teckheng Lee said...

If it announced a lower dps, the price will sink further, that's one of my concerns.

AK71 said...

Hi Teckheng,

It could happen, of course.

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