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Background: QAF Limited is a multi-industry food company with businesses in bakery, primary production, trading and logistics. Gardenia, Bonjour, Cowhead and Farmland are some of its well-known product brands. Its food businesses cover Singapore, Malaysia, Australia, the Philippines and China.
Recent development: QAF posted promising 1Q11 results with 94% YoY growth in net profit to $28.2m. A closer look revealed that the increase was partially helped by a $21.4m writeback for provisions for doubtful debt, which was made previously in relation to advances to Shaanxi Hengxing, its China fruit juice business. The business has since been sold.
Key ratios…
Price-to-earnings: 6.2x
Price-to-NTA: 0.85x
Dividend per share / yield: $0.04/6.2%
Net cash/(debt) per share: (S$0.13)
Net gearing: 0.17x
Share price S$0.62
Issued shares (m) 498.093
Market cap (S$m) 308.82
Free float (%) 19.8
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders Tian Wan Group (61.6%), Denonshire Group Ltd (9.2%)
YTD change -3.13%
52-wk price range S$0.565-0.680
Our view:
Passing on escalating costs. Faced with rising prices of basic food ingredients, QAF would continue to face pressures on its operating costs. But we believe it has the ability to pass on the cost increases to the consumers, given that its products are mainly consumer staples.
Bakery business gaining market share. The bakery business, which accounts for about half of its revenue, continues to deliver increased sales growth through market share gains. This was possible with the strong branding of its bakery products, especially the Gardenia brand.
Potential privatisation candidate. QAF expressed confidence in its outlook statement and expects higher profitability for FY11 vs FY10. At current valuations of only 6.2x FY10 PER, 0.8x P/B and dividend yield of 6.5%, the stock appears relatively cheap compared to peer food companies. Add the low trading volume and more than 60% ownership by the controlling shareholder, we do not rule out the possibility that the company could be taken private.
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