On 8 August 2024, QAF Limited (“QAF”) announced their half year result for FY2024. QAF seems to remain in a strong financial position, and they have repaid a significant portion of their borrowings during this half of the year, allowing them to reduce their finance costs. Management have also highlighted that key commodity costs relating to raw materials have continued from the downward trend of FY2023, which have helped them to obtain better margins. Barring unforeseen circumstances, this will likely continue for the second half of FY2024.
Website: Financial Statements And Related Announcement::Half 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 | +3.0% | +9.0% |
Revenue for the first half of FY2024 increased by 3.0% to SGD309 million from SGD301 million for the same period in the previous financial year. Both the Bakery segment and Distribution & Warehousing segment saw an increase in revenue by 2%. Management have also shared that the reinstatement of the production lines is successful at their Malaysian bakery factory that were damaged by floods in December 2021. This metric is Favorable aspect of the dividend stock.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | +144.4% | +6.7% |
The Basic and Diluted earnings per share for the first half of FY2024 increased impressively by 144.4% to SGD0.022 per share as compared to the significantly lower base of SGD0.009 per share in the previous financial year. This metric remains Favorable and is a good aspect of the dividend stock.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | +17.6% | +9.8% |
Net cash generated from operating cash flows for the first half of FY2024 increased by 17.6% to SGD19 million from SGD16 million for the same period in the previous financial year. There were no significant changes noted in their cash flow statement and therefore the improvement in operating cash flows were due to the increase in profit. The metric remains Favorable.
With an expected dividend paid of SGD28.8 million based on SGD0.05 per share, the cash flow generated for FY2024 is on track to be sufficient to payout the dividends.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing ratio | 24.0% | 27.0% |
With effect from April 2024, my articles will be shifting the metric for this section from debt-to-equity ratio to gearing ratio. This will allow readers to have an easier comparison with Real Estate Investment Trusts (“REITs”) and determine the amount of financing each Company is using. Gearing ratio was 27.0% at the end of the previous financial year, with total assets of SGD669 million and total liabilities of SGD180 million.
Gearing ratio stands at 24.0% as of 30 June 2024. This metric is computed using total assets of SGD625 million and total liabilities of SGD149 million. The metrics remain Favorable as QAF is less reliant on external sources to fund operations. With the profitable operations, this can be lowered further in the near future.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest coverage | 16.3x | 20.7x |
The interest coverage stands at 16.3 times as of 30 June 2024, using profit before tax of SGD16.8 million and finance costs of SGD1.1 million. The high interest coverage ratio is due to the Group have very minimal borrowings compared to their total assets, as they have also made a repayment of borrowings of SGD9.7 million during this half of the year. The metric is Favorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.98 | 1.02 |
The Price-to-book (“P/B”) ratio for QAF is 0.98. This is computed using the Net Asset Value (“NAV”) per share of the Group as of 30 June 2024 of SGD0.823 per share and the closing share price of SGD0.810 as of 8 August 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 SGD190 million and total borrowings of SGD15 million, at total ordinary shares of 575 million this represents net cash of SGD0.31 per share.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 4.94% | SGD 0.040 |
| 2023 | 6.17% | SGD 0.050 |
| 2022 | 8.64% | SGD 0.070 |
| 2021 | 6.17% | SGD 0.050 |
| 2020 | 6.17% | SGD 0.050 |
| 2019 | 6.17% | SGD 0.050 |
With the exception of 2022 where there was a special dividend payout of SGD0.020 per share 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 interim dividend of SGD0.010 per share, the total dividend payout in 2024 will remain unchanged at SGD0.050 per share and using the closing share price of SGD0.810 as of 8 August 2024, this translates to a recurring dividend yield of 6.17%. For my benchmark, a general reasonable yield would be around 5.75%. 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 2024Q3 – 5.75%
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 SGD0.45 per share for the first half of FY2024, which will be sufficient to maintain the dividend payout. Computation as below.
| Description | Amount |
|---|---|
| Profit after tax from continuing operations | SGD 12,408,000 |
| Amortization and depreciation adjustment | SGD 13,530,000 |
| Adjusted net profit | SGD 25,938,000 |
| Number of shares | 575,268,440 |
| Adjusted earnings per share | SGD 0.045 per share |
The issue with this, however, is management signaling 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 | +3.0% | Favorable |
| Earnings per share | +144.4% | Favorable |
| Operating Cash Flows | +17.6% | Favorable |
| Gearing ratio | 24.0% | Favorable |
| Interest coverage | 16.3x | Favorable |
| Price to Book Ratio | 0.98 | Favorable |
| Overall | Favorable |
In conclusion, QAF remains in a Favorable position. With the high cash reserves, this is a strong buffer to cover their operation expenses and dividend payouts and will allow the Group to pursue any suitable growth opportunities. 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 Full Year Result
