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.
Quote.
ReplyDeleteHowever, 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. :)
Hi AK,
ReplyDeleteThe 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?
Hi Laurence,
ReplyDeleteI 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. ;)
Hi JJ,
ReplyDeleteMaybe 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.
:(
ReplyDeleteQuote.
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.
Hi Laurence,
ReplyDeleteYes, it is important to have a plan, your own plan. :)
Reader says...
ReplyDeleteCan 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.
Sau Yee Fong says...
ReplyDeleteQAF 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.
If it announced a lower dps, the price will sink further, that's one of my concerns.
ReplyDeleteHi Teckheng,
ReplyDeleteIt could happen, of course.
For year 2018, EPS is 1.4 cents. But they still continue to pay out a DPS of 5 cents. That is dangerous. Do you think so ?
ReplyDeleteHi betta man,
ReplyDeleteI have said before that we should realistically expect QAF to reduce its DPS and I think they should do it.
Hi AK,
ReplyDeleteI bought QAF in 2017 at around $1.30 and constitute about 3% of my portfolio (cash & SRS). Looking at a paper loss of 32% (including dividends) - quite painful. Hope things will improve for them. Thanks.
Hi Invest SG,
ReplyDeleteThe cyclical component of QAF's business will take time to turn around.
Crossing fingers.
hello AK
ReplyDeleteQAF had called a trading half recently and today the share price went up slightly i presume its good news. Would you care to comment. I bought QAF for many years now collecting it here and there highest bought in at 1.13 so any good news i will be so happy
cheers patricia
Hi Patricia,
ReplyDeleteI have been a QAF shareholder for many years and the investment has been mostly good to me.
At the current price, it is not one of my largest investments but it is one of my larger smaller investments.
If managed well, I think QAF will be worth more in time to come.
Its primary production business had a good quarter but it is hard to tell from just one quarter if it is emerging from the cyclical downturn.
I will let the management do their work while I continue adventuring in Neverwinter. ;p
Hello AK,
ReplyDeleteWith the sale of the porky business, will you be talking to yourself again?
Thank u
Hi Rae,
ReplyDeleteThere is nothing much to say really.
It is too bad as I was expecting the porky business to sell for more.
Now, QAF can concentrate on its bakery business. :)
Morning AK, QAF gives special dividend this Feb. Hope you can talk to yourself how sustainable is the dividend payout (it's something like 100% earning). Thanks, Dan
ReplyDeleteHi Dan,
ReplyDeleteI have no issues with companies paying out 100% of their earnings as dividends.
ST Engineering was doing exactly that for many years until they decided to retain some earnings to fund growth.
If a company has no good reason to retain earnings, I rather they distribute to shareholders as dividends. ;p