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QAF Limited: $1.14 a share is cheaper than 93c a share?

Monday, April 20, 2015

One year ago, when QAF Limited's stock was trading at 93c a share, I observed that the PE ratio was 16.6x and I said that to buy in at that price would be making an assumption that earnings could improve dramatically in the future. 

There were pertinent concerns such as rising costs of doing business as well as the weak Australian Dollar and how these could continue to weigh down performance.

Video added in November 2016.

Well, for the full year 2014, QAF Limited has exceeded expectations as earnings per share (EPS) improved 46.4% from 5.6c to 8.2c, year on year. With the Australian Dollar having weakened further against the Singapore Dollar, how did this happen?

There was a one off contribution by Oxdale Dairy through the sale of its dairy business. Group operating profit, thus, received a boost of $1.6m. This will not be repeated, of course. However, considering the fact that Group profit improved some $15.7m (before tax), not having this one off contribution in the current year would still mean that QAF Limited would do very well, everything else remaining equal.

All business segments did well but the lion share of the improvement came from Rivalea, an Australian business segment. Operating profits improved threefold although revenue stayed flat because of higher selling prices, better product mix, productivity gains and lower raw material costs.

Lower finance costs also helped QAF Limited to do better in 2014 as borrowings were pared down. Interest expense decreased $0.9m from $4.1m to $3.2m last year.

Today, QAF Limited's stock closed at $1.14 a share and based on an EPS of 8.2c, we are looking at a PE ratio of some 14x. Even if we remove the one off divestment gain by Oxdale Dairy, we would be looking at a PE ratio of 14.5x, thereabouts.

So, although QAF Limited's stock is priced higher now, compared to buying at 93c a share a year ago, it is actually cheaper at $1.14 a share. This is what I meant when I said that a stock could actually be cheaper although its price could be higher. It is about value, not price.

QAF Limited has made their first foray into China in October 2014. With operations in Singapore, Malaysia, Philippines and Australia stable and doing well, if their Chinese operations should prove successful, we could see things looking even better in the next few years. After all, the Chinese market is huge and bread is an accepted staple as well as convenience food.

A final dividend of 4c per share has been declared for a full year DPS of 5c. This DPS is probably sustainable and I look forward to receiving free bread again in future.

Related post:
QAF Limited: Rising 5c to 93c a share.


Unknown said...


Do you think the bakeries that have been popping up in recent years would affect QAF Ltd going forward ?

I remember 5-10 years ago, almost everyone just had Gardenia Bread for breakfast. But nowadays, there are a lot more varieties due to bakeries like Breadtalk, Qbread, neighbour bakeries, etc popping up here and there. I personally can't remember the last time I had Gardenia bread for breakfast anymore, other than 5-10 years ago.

Sillyinvestor said...

Hi AK,

Briefly looked at QAF in the past, do correct me if I am wrong, Rivalea, is the poultry business of QAF, right?

It's earning is rather unstable. How do we know if it has turnaround for good and not just due to external tail wings?cyclical factors or low Aust helping exports for example?

Golden Agri China business swing from profit to loss as frequently as Roti Parata is flipped.

Anonymous said...

Learned something today again...

"It is about value, not price."

Thanks again AK :-)

Sillyinvestor said...
This comment has been removed by the author.
Sillyinvestor said...


just to share my observation, every time I go to supermarket (NTUC, Cold storage), I will look at bread (QAF) and oil (golden agri)

I am surprised by the moat of Gardenia. I am eating those "budget" bread now, the only difference is it seems to break into crumbs more easily, taste wise, hardly any difference.

If you look at quantity(house brand usually come in bigger pack) and compare it accordingly, it is usually 30% cheaper and Giant can be 50% cheaper for its Jumbo pack.

But Gardenia and Sunshine are the ones flying off the shelves

Guess not everything can be explained in dollars and cents. LOL

AK71 said...

Hi Janson,

I think that Breadtalk, Four Leaves, Sun Moulin and St Leaven are competitors. Neighbourhood bakeries such as QBread and Baker Talent too. They are in the gourmet bakery segment. ;p

Gardenia is in the packaged bread segment and their main competitor in Singapore is Sunshine, I feel. It was revealed that Gardenia is still the best selling brand in the packaged bread segment and based on my observation when I visit the NTUC Fairprice supermarket near my place, I feel that it is true. :)

AK71 said...

Hi Mike,

You have to read pages 29 to 31 of QAF Limited's annual report and I think you will be as impressed as I am with Rivalea which is the largest fully integrated pork production operation in Australia.

I believe that Rivalea has a competitive advantage and will be able to continue to keep costs down which is the main reason for its heightened operating profit. :)

AK71 said...

Hi Kevin,

Oh, I am just talking to myself as usual. I could be more lucid this time as compared to other times. ;p

AK71 said...

Hi Mike,

For us in Singapore, Gardenia in the area of packaged bread is like Coke in the area of soft drinks and Old Chang Kee in the area of finger food. A big part of their moats lies in their powerful branding. They are entrenched in local consumers' psyche. :)

blazingruby60 said...

hi AK
Noticed that QAF share price has been sliding of late. I have been collecting this share and wondering should I be concerned (anyone knows whats happening to cause this slide) or its time to pick up more? thanks..

AK71 said...

Hi blazingruby,

Well, I think I might be tempted to get some if its share price were to go under $1.00, all else being equal. ;p

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