Privatisation offer for Food Junction. Auric Pacific has offered to take Food Junction private for SGD0.255 per share, 40.11% above the last transacted price and 34.1% above 12-month VWAP. Excluding a one-off impairment charge and restaurant losses in FY12, this values food courts segment at an ex-cash PER of just 4.8x. Auric will only need to fork out a net sum of SGD6.5m to take the remainder of Food Junction private (38.55% stake). We view this deal as highly attractive, and are positive that CEO Saw Phaik Hwa is transforming Auric Pacific one step at a time.

Clean-up of Auric began in 2012. Auric fully disposed a non-core high-interest lending business in May 2013. In 2010, Auric had purchased a 60% stake in a mezzanine loan of a residential project in Hunan, China, where it expected to receive interest at the rate of 15% p.a.. When the borrower stopped servicing the loan in Mar 2012, Auric managed to claw back its initial book value of SGD20.8m, and the investment was fully disposed of. Meanwhile, a new CEO had been appointed to look after its food operations and Sunshine Bakeries following with the departure of the CEO of Delifrance. Cost-wise, we find the 16.4% YoY decline in Auric’s administrative expenses in 1Q13, against a revenue increase of 2% YoY, encouraging.

Food Junction could become Auric’s earnings driver. Food Junction’s food courts are highly profitable. Net margins averaged 17.6% in the last five years, with a dip in FY12 from the closure of nonperforming outlets and opening of a new food court at Sembawang. The restaurant business however never fully recovered from the financial crisis in 2009. Today, Auric has 5 food court brands and over 10 restaurant brands in its stable in Singapore, China, Malaysia and Indonesia.

Valuations are cheap given its potential. Auric is trading at a historical PER of 10.8x and EV/EBITDA of 11x. We think this is cheap as it does not factor in the potential growth prospects after a possible restructuring of the restaurant business, and possibly a rationalization of its various F&B brands to build up economies of scale.

Source: Maybank Kim Eng Research - 26 Jun 2013