On 23 February 2024, QAF Limited (“QAF”) announced their full year result for FY2023. QAF had a strong second half of 2023 allowing them to bring their earnings per share closer to their annual dividend paid out. This is a good sign that QAF may be able to continue strengthening their core business, building stronger buffers for future times of uncertainty.
Website: Financial Statements And Related Announcement::Full Yearly Results
Background
QAF is a leading multi-industry food company with core businesses in Bakery and Distribution and Warehousing. QAF have an extensive operations and distribution network in the Asia-Pacific region including Singapore, Malaysia, the Philippines, Australia, Myanmar, Thailand, Cambodia, Hong Kong, Taiwan, Macau and Brunei. The Group, together with their joint venture in Malaysia, currently employs over 9,000 employees. They are listed on the Singapore Exchange Securities Trading Limited.
The bakery operations cover Singapore, Malaysia, the Philippines and Australia. They produce branded packaged bread and unpackaged bread, as well as a wide range of frozen and par-baked specialty French-style breads and pastries.
The distribution and warehousing business in Singapore remain one of their core businesses. They are a leading importer and distributor of a wide range of international food brands, including their very own Cowhead, Farmland, Haton, Orchard Fresh and Spices of the Orient proprietary brands.
Brands under their wing includes:
- Gardenia, the leading packaged bread brand in Singapore, the Philippines and Malaysia.
- Bakers Maison, a French-style bread specialist manufacturer in Australia that produces par and full-baked frozen bread, pastries and sweets.
Financial highlights
Revenue
| Metrics | Current | Previous |
|---|---|---|
| Revenue | +9.0% | +12.0% |
Revenue from continuing operations increased by 9.0% to SGD628 million from SGD577million the previous financial year. The Bakery segment sales increased by 9% and Distribution & Warehousing segment achieved an increase in revenue by 8%. This metric is Favorable aspect of the dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | +6.7% | -64.0% |
The FY2023 Basic and Diluted earnings per share for continuing operations have increased by 6.7% to SGD0.048 per share as compared to SGD0.045 per share in the previous financial year. This metric is Favorable aspect of the dividend stock.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | +9.8% | +9.2% |
Net cash generated from operating cash flows increase by 9.8% to SGD57 million for FY2023 from SGD52 million in the previous financial year. Perusing through their financial statements, there were no significant changes and therefore the improvement in operating cash flows were due to the increase in profit. This is Favorable.
With an expected dividend paid of SGD28.8 million based on SGD0.05 per share, it is sufficient to payout the dividends.
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | 37.0% | 32.4% |
Debt-to-equity ratio stands at 37.0% as at 31 December 2023. This metric is computed using total assets of SGD669 million and total liabilities of SGD180 million. While there was an increase, the metrics is currently still Favorable as QAF is less reliant on external sources to fund operations. With the profitable continuing operations, this can be lowered in the near future.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest coverage | 20.7x | 11.1x |
The interest coverage stands at 20.7 times as at 31 December 2023, using profit before tax of SGD40.9 million and finance costs of SGD2.1 million. The high interest coverage ratio is due to the Group have very minimal borrowings compared to their total assets. The metric is Favorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.02 | 0.98 |
The Price-to-book (“P/B”) ratio for QAF is 1.02. This is computed using the Net Asset Value (“NAV”) of the Group as at 31 December 2023 amounted to SGD0.846 per share and the closing share price of SGD0.860 as at 23 February 2024. This is Favorable as it translates to paying a small discount for QAF business.
On another note, worth nothing that with cash and cash equivalents of SGD215 million and total borrowings of SGD30 million, at total ordinary shares of 575 million this represents net cash of SGD0.32 per share.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 5.81% | SGD 0.050 |
| 2022 | 8.14% | SGD 0.070 |
| 2021 | 5.81% | SGD 0.050 |
| 2020 | 5.81% | SGD 0.050 |
| 2019 | 5.81% | SGD 0.050 |
| 2018 | 5.81% | SGD 0.050 |
With the exception of 2022 where there was a special dividend payout of SGD0.020 from the disposal of their poultry business, QAF have been paying out consistent dividend of SGD0.050 per share throughout the years since 2012.
With the proposed final dividend of SGD0.04 per share, it is likely that the total dividend payout in 2024 will remain unchanged at SGD0.05 per share and using the closing share price of SGD0.860 as at 23 February 2024, this translates to a recurring dividend yield of 5.81%. For my benchmark, a general reasonable range would be from 5.25% to 6.25%. The dividend yield is thus Favorable and comparable with Real Estate Investment Trusts (“REITs”) whose mandates are to distribute majority of their earnings as dividends.
Website: Reasonable Dividend Yield 2024Q1
It was worth noting however that the dividend payout has been more than their earnings per share throughout history. This is made possible given that amortization and depreciation expense, which is a non-cash expense.
Adjusting the net profit into net profit before amortization and depreciation would result in the adjusted earnings per share of SGD0.091 per share for 2023, which will be sufficient to maintain the dividend payout. Computation as below.
| Description | Amount |
|---|---|
| Profit after tax from continuing operations | SGD 27,579,000 |
| Amortization and depreciation adjustment | SGD 24,862,000 |
| Adjusted net profit | SGD 52,441,000 |
| Number of shares | 575,268,440 |
| Adjusted earnings per share | SGD 0.091 per share |
The issue with this however, is management signalling that there is not much capital expenditure required to replace their assets. Annual repair and maintenance will be sufficient to maintain their assets, which is cheaper than purchasing a new asset. Investors will need to take note if they are comfortable with the idea that their assets are able to last longer than the pre-determined useful lives as at reporting date.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | +9.0% | Favorable |
| Earnings per share | +6.7% | Favorable |
| Operating Cash Flows | +9.8% | Favorable |
| Debt-to-equity ratio | 37.0% | Favorable |
| Interest coverage | 20.7x | Favorable |
| Price to Book Ratio | 1.02 | Favorable |
| Overall | | Favorable |
In conclusion, QAF is still in a strong financial position which will allow the Group to pursue any suitable growth opportunities. With the high cash reserves, this is a strong buffer to cover their operation expenses and dividend payouts. and the stock is a good option for those considering adding for its long term sustainable dividend payout.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: QAF Limited (SGX: Q01): 2023 Half Year Result
