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What is QAF Limited really worth?

Sunday, February 26, 2017

Gardenia is providing the best that consumers deserve! Impressive!

QAF Limited has announced a 129% increase in full year net profit. 

A final dividend per share (DPS) of 4c has been declared. Total DPS for the year is 5c.

Why the big jump in net profit? There is an exceptional item which accounts for almost $60 million worth of income.

Earnings per share (EPS) for the full year 2016 is 21.4c. Excluding the exceptional item, EPS is 10.9c which is still a very decent 16% increase over 9.4c from the year before.

I have said before that QAF Limited should trade at a PE ratio of at least 14x. However, if what happened at Auric Pacific is any gauge, QAF Limited should trade at a higher PE ratio.

Shareholders of Auric Pacific (think Sunshine bread) received an offer price of $1.65 a share in early February. I said then that the offer valued Auric Pacific at about 18.3x PE ratio.

Based on Auric Pacific's full year results released a few days ago, a full year EPS of 5.74c means that the offer price of $1.65 valued Auric Pacific at 28.7x PE ratio! (See announcement: HERE.)

I have also found out that leading packaged bread bakeries in Thailand and the USA trade at 19x and 23x PE ratios, respectively. 

Based on all these comparisons, QAF Limited even at $1.55 a share is still inexpensive. At 18x PE ratio, it should trade at $1.96 a share.

Of course, I do not know if Mr. Market is willing to pay $1.96 a share for QAF Limited and, frankly, this is more of an academic exercise for me. After all, I am more interested in collecting dividends from well run businesses.

In January, QAF Limited announced plans to expand their operations in the Philippines, a market which is doing very well for them. All else remaining equal, they are likely to do even better once their expansion in the Philippines is completed in the next 2 years.

What is QAF Limited really worth? Don't ask me. I am just a blogger. What do I know?

See results: HERE.
Related post:
Good entry price for QAF Limited?


Sanye ◎ 三页 said...

Hi AK,

Dividend declared is the same with last year. I am a bit disappointed that QAF did not declare a higher dividend though the profit has more than double.

AK71 said...

Hi Sanye,

They used the money to pay down their debt which is already quite low. I would have liked a special dividend but a stronger balance sheet gives peace of mind. I don't mind.

Also, they will need more than $20 million for expansion plans in the Philippines over the next 2 years. I like to think that the management is being prudent.

Hopefully, shareholders will be better rewarded in future. :)

dpang88 said...

What do you think is happening to QAF this morning? Can you talk to yourself?

desmondsph said...

Today super sell down. Wonder what trigger it.

AK71 said...

From FaceBook:

Lawrence Tan:
Why suddenly qaf drop so much?

Ah John:
:( AK magic not working now

I am glad

Augustine Lim:
If it goes lower I will add to my existing position

I am happy with the share price dropping.

Augustine Lim:
Same here. I earlier bot too little. Now got chance to add

Eric Kua:
11% drop in 2 hrs, scary

I am happy to have the opportunity to average up at what is probably a fair price.

AK71 said...

Hi Derrick and Desmond,

Don't look at me. Ask Mr. Market. ;p

I can only say that we have to know the value of something so that we know if the price makes sense. :)

AK71 said...

From FaceBook:

Raymond Ng:
PE 14X (excluding 1 off gain) still way below peers.

QAF is inexpensive. I specifically compared with packaged bread bakeries only to be more precise too.

Tong Xiang Yap:
3.5% yield annually. Now declare 4 cents, take the deposit of 2.8% first lah.

Jack James:
Sell on news ? Anyone get S$1.375 today ?

I see only 3,000 shares done at $1.375. And shared between 2 trades too. lol
put in my queue to buy more liao... now, i go watch k-drama and take a nap.

Eve Low:
Wah...I'm also waiting to buy more...ha!

Cory said...

I looks at the transactions down from high of 1.53. Seems no strong players inside to support.
The sell down is largely done in small volume and right after trading started after 180++ lots buy up. This is really interesting.

AK71 said...

Hi Cory,

I blur. -.-"

Cory said...

Here's the trade. Market open with Buy up more than 180 lots. This fellow must be pulling his hair right now.

09:02:13 1.525 20,000 Buy Up
09:02:00 1.520 100 Buy Up
09:02:00 1.520 500 Buy Up
09:01:51 1.520 100 Buy Up
09:01:51 1.520 9,900 Buy Up
09:01:03 1.520 100 Buy Up
09:00:27 1.530 60,000 Buy Up
09:00:01 1.530 100 Buy Up
08:58:09 1.530 5,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 300 Buy Up
08:58:09 1.530 10,000 Buy Up
08:58:09 1.530 4,000 Buy Up
08:58:09 1.530 2,000 Buy Up
08:58:09 1.530 2,000 Buy Up
08:58:09 1.530 1,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 5,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 5,000 Buy Up
08:58:09 1.530 5,000 Buy Up
08:58:09 1.530 2,000 Buy Up
08:58:09 1.530 1,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 600 Buy Up
08:58:09 1.530 300 Buy Up
08:58:09 1.530 5,000 Buy Up
08:58:09 1.530 3,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 2,000 Buy Up
08:58:09 1.530 2,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 47,500 Buy Up
08:58:09 1.530 200 Buy Up
08:58:09 1.530 2,300 Buy Up
08:58:09 1.530 7,500 Buy Up
08:58:09 1.530 10,000 Buy Up
08:58:09 1.530 100 Buy Up
08:58:09 1.530 100 Buy Up

AK71 said...

Hi Cory,

Must be a HNW individual. That's almost $300K. :o

Kevin said...

Hi AK,

With the following metrics listed below, very hard not to buy leh. :P

1 ) rising net income
2) rising cash flow from operations
3) low debt/equity
4) double digit ROE
5) single digit P/E
6) single digit EV/EBITDA

Phileas.Wind said...

Thanks for share your view. I bot some today. I like dividends from a established business.

AK71 said...

Hi Kevin,

If we exclude the one off gain, the PE ratio is still a very reasonable 13x at $1.41 a share. I am ready to accumulate if Mr. Market were to offer me even lower prices. ;)

AK71 said...

Hi Phileas,

Welcome. I hope you like Gardenia bread too. ;)

TFP said...

Hi AK71,

I bought a little too. Hope the dividend can supply me with breakfast perpetually.

Best Regards.

AK71 said...

This has been an interesting day as I took advantage of Mr. Market's sudden mood swing which saw QAF Limited's share price plunged 11.5% at one stage to increase my investment in the business by more than 50%.

With the purchase today, my already substantial investment in QAF Limited has become even more so. I look forward to receiving more income from this investment in future as, fundamentally, the business has never been stronger.

For those who believe in charts, technically, the uptrend is still intact.

AK71 said...


I like the idea of having free bread on the table daily. ;)

desmondsph said...

i jiak Gardenia everyday. small invester. Nibble abit, now eat the bread also taste better lol

AK71 said...

Hi Desmond,

I know what you mean. LOL ;p

EK said...

Hi AK,

while doing my homework to evaluate QAF, i'm slightly uncomfortable with the price paid for the share even at $1.4. The numbers look good but EPS is not growing as much as the price in recent years. Refer to this chart

I'm not sure if the price is slightly at the oversold region and probably that's why it came down with a correction after the recent earnings report. overall it's a good company with strong fundamentals but price might be otherwise.


Kevin said...

Hi AK,

I managed to board the QAF ship together with you last year to eat Gardenia loti when the loti was slightly over $1. :P

I am sure they will be even more such opportunities to buy at even lower prices this year. Netherlands and France will be having their elections in March and April. Germany will have theirs in September.There will definitely be volatility in the markets if any anti-EU individual or party comes into power especially France and Germany who are the main drivers for the EU economy. ;)

keng said...

Breaktalk closes at $1.335.
QAF closes at 1.415.

No expert here, but doesn't it appear that either Breadtalk is really overvalued, or QAF is really undervalued??

Bought my first few lots (loaves) of Gardenia goodness today. On hindsight, should have gotten more loaves!

AK71 said...

QAF Limited’s FY16 revenue was down 11% to S$889.5m while PATMI was up 129% to S$120.4m, due to a one-off gain amounting to S$59.4m arising from the sale of 20% stake in Gardenia Bakeries KL Sdn Bhd earlier in Apr-16 and a re-measurement of the stake in GBKL. Excluding this gain, PATMI was up 16%.

Notwithstanding a one-off ~S$8.6m impairment loss relating to China bakery assets, core operating results would have been higher and within our expectations. The decrease in revenue was due to the deconsolidation of financial results of GBKL, otherwise, sales had increased across all business segments (Bakery, Primary Production, Trading & Logistics), underpinned by new products, better volume and ASP.

Notably, Rivalea (Primary Production) EBIT rose 151% to S$42.1m on the back of favourable product mix, productivity gains, lower operating costs especially feed costs.

Separately, the group is exploring strategic acquisitions and/or collaboration with other food companies, while also conducting strategic reviews of its primary production business in Australia and its bakery business in China.

OCBC Research, 27 Feb 2017

AK71 said...

Hi EK,

If we do not feel comfortable, giving it a miss is a good idea. ;)

AK71 said...

Hi Kevin,

At $1.03, I believe that was at a PE ratio of about 11x back then. Currently, at $1.41, QAF is trading at 12.9x PE ratio. I feel that it is inexpensive but definitely not as cheap as 11x. ;)

Mr. Market could experience another bout of anxiety and we could have a chance to buy at 11x PE ratio again in future. This is a definite possibility. Closer to $1.20 a share would see me buying a lot more, everything else remaining equal. :)

AK71 said...

Hi Keng,

I think it is no secret that I still like QAF more than BreadTalk.

QAF has been paying a meaningful dividend yearly (DPS 4c to 5c). Payout ratio is about 50%. QAF also has a strong balance sheet and is in a net cash position.

My investment in QAF is probably 6x or 7x bigger than my investment in BreadTalk.

AK71 said...

A refresher from 2015.

In 2014, when QAF Limited's stock was trading at 93c a share, I observed that the PE ratio was 16.6x.

In 2015, 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.

Today, at $1.41 and a core EPS of 10.9c, QAF is trading at a PE ratio of 12.94x.

Remember, higher share price could actually be cheaper than a lower share price. OK, don't listen to AK. He is just a mental blogger. -.-"

QAF at $1.14 is cheaper than at 94c?

Unknown said...

You all seen to be looking at the bakery, too greedy of bread, but is QAF all bread? Sold 1.55 when all point to overbought. Sold APPL too. Good luck to all,

AK71 said...

Hi Unknown,

Congratulations :)

AK71 said...

Jerry Lee:
AK, do you think the sale of their stake in GBKL (malaysia subsidiary) needs to be considered in the valuation for the stock? (i.e other than deducting an 1-time off gain - should an investor also consider its lower earnings in the near future? (Not sure if I am correct with this assumption. Hope to hear you talk to yourself!) "For the financial year ended 2014, GBKL contributed S$298 million in revenue and S$10.7 million in profit before tax to QAF group financials. This works out to about 30 per cent of revenue and close to 20 per cent of profit before tax."

If I remember correctly, they had a 70% share. Now, they reduced to 50% because of regulation in Malaysia. The balance 50% has been revalued upwards. In terms of impact to revenue, it probably works out to be 5% of total revenue. With higher revenue from the Philippines and Australia, I feel that this 5% loss can be covered and more.

anon said...

Hi AK, QAF 4Q16 Dec2016 quarterly commentary explained the -11% dip in Revenue (from $998mil in 2015 to $889mil in 2016) as attributable to deconsolidation of financial results of GBKL from that of the Group’s, due to the 20% sale of its shareholdings in GBKL.
Can I regard 2016 Revenue of $889mil as the new norm for Revenue going forward?
This assumes all other things (including Philippines & Australia revenue) remaining unchanged.

AK71 said...

Hi jojo,

We can be conservative and assume that, yes. :)

I will blog about fair values for QAF Limited given different assumptions soon. ;)

K said...

Hi AK,

What website do you usually use to pull out your numbers like EPS? I look at the SGX website and it looks different.


AK71 said...

Hi K,

I like to hear from the horse's mouth. So, for QAF, I looked at their latest financial report. ;)

James Tan said...

Buying more bread today ?
Who is joining me in the queue 1.30

JB said...

Hi AK,

Will you be taking the shares vs cash for the dividend? Can talk to yourself?

Thank you. :)


AK71 said...

Hi JB,

I invest for income. So, my preference is for cash.

AK71 said...

QAF has a respectable return on equity (ROE). In 2016, the company generated a ROE of around 13% (after adjusting for one-off gains), while carrying more cash than debt on its balance sheet.

It may not be an apples-to-apples comparison, but food & beverage retailer BreadTalk Group Limited (SGX: 5DA) and beverage manufacturer Yeo Hiap Seng Ltd (SGX: Y03) both had ROEs of less than 10% in the same period.

One reason why I think QAF managed to generate that high ROE is because of its leading market positions. This is another of the company’s strengths.

QAF has three business segments, namely, Bakery, Primary Production, and Trading & Logistics.

In its Bakery business, QAF has leading market shares in Singapore (the company’s Gardenia brand was ranked the ‘No.1 Selling Bread Brand’ by A.C. Nielson in terms of sales and volume for the year ended June 2016), Malaysia (Gardenia was voted as Malaysian consumers’ ‘Most Preferred Brand’ in the 2016 Putra Brand Awards), and Philippines (Gardenia has a share exceeding 60% in Metro Manila’s packaged fresh bread market).

In QAF’s Primary Production business, its subsidiary, Rivalea, is a leading integrated pork production company in Australia with a market share of approximately 17%.

Given that the Bakery and Primary Production segments accounted for 87.6% of QAF’s 2016 revenue, understanding the market positions the two segments have can explain the reasonably strong ROE of the company.

QAF operates in businesses that are usually categorized as boring and slow growing.

Yet, the company has leading positions in various markets. That is a strength that allows it to generate a reasonably attractive return on equity.

June 21, 2017

D said...

Hi AK,

QAF is mostly a boring stock, but today it has dropped by at least 3%, any reason for the drop and what is your comment? Thanks

AK71 said...

Hi W Y,

I have absolutely no idea why the stock price moved the way it did. -.-"

AK71 said...

QAF share price dropping today !

I wish the price would drop more. ;p

Kevin said...

Hi AK,

Mr Halim will also hope it drops more so that it gives him a golden opportunity to thank all investors for their support since IPO and take the next step to turn it private at low valuations like what Li Ka-Shing did to ARA asset management. :P

AK71 said...

Hi Kevin,

That could certainly happen. That was what the Riady family did with Auric Pacific not too long ago. ;)

Betta man said...

Unlocking shareholders' value for QAF shareholders ?

AK71 said...

Hi betta man,

QAF will stand to book a few million dollars in profit from the listing.

From the lack of a special dividend when they reduced their stake in Gardenia KL, I do not expect a special dividend from this either.

Still, a gain is better than a loss. ;)

Betta man said...

What's your take on this, AK ? I think this will negatively affect QAF's share price.

Pulled pork as Rivalea calls off IPO
The Australian12:00AM November 7, 2017


Mergers & Acquisitions EditorSydney

The curse of the failed float has hit again: pork producer Rivalea has pulled out from its planned initial public offering in another sign that equity capital markets remain under pressure.

The company owned by Singapore’s QAF had been using Morgans to prepare it to float next month. It had been expected to raise up to $100 million and was likely to be valued around $200m.

A non-deal roadshow was held in July and there was the expectation that QAF, a Singapore-listed food company, would keep 51 per cent of Rivalea once it was listed.

Rivalea has seven pig farms, 19 contracted farms, three feedmills, pork processing and two grain storage businesses.

Marketing of the float had been under way for the past few months and the hope was that prospective investors would be drawn to the operation on the back of popularity in the consumer sector.

Rivalea, previously part of Bunge in Australia, also owns Family Chef, Eggstra and Riverlea Australia.

The price expectations of the vendor, and its advisers, seemingly differed from the market and fund managers, which is why the float was shelved.

AK71 said...

Hi betta man,

Very unfortunate.

Definitely sounds more negative than positive.

I wouldn't be surprised if the share price suffers some downward pressure.

Betta man said...

QAF price tumbled to 89 cents at point of writing. based on 5 cents dividend payout, the dividend yield is 5.6%, which is not bad.

But in your opinion, do you think the dividend is sustainable ? I understand that their profits are hit badly recently.

AK71 said...

Hi betta man,

Insiders have been buying as share price drops.

With falling EPS, you are right to wonder if DPS of 5c can be sustained.

Business cost is rising.

QAF is now trading below its NAV and if share price drops more, it could be quite attractive from a value perspective.

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