QAF released an announcement yesterday evening regarding the licensing agreement relating to the grant by QAF to Gardenia Bakeries (KL) Sdn Bhd (GBKL) to use the “Gardenia” trademarks on bread and other bakery products manufactured in Malaysia. GBKL is currently a 50:50 JV between QAF and Padiberas Nasional Berhad (BERNAS).

The licensing agreement has been renewed for another five years to 31 Mar 2021, while the licensing fee payable by GBKL to QAF has been reduced by 5.25% to 1.5% of the gross sales, subject to maximum gross sales of RM800m per financial year.

The lower licensing fee payable would be partially offset by the higher share of contribution from the JV. Taking these into consideration as well as the previously announced change of stake in GBKL (from 70% to 50%), we still maintain our BUY rating on the stock while we will review our fair value estimate of S$1.27.

Source: OCBC Research - 9 Jun 2016