• Deconsolidated GBKL results
• 2Q16 core PATMI rose 56% YoY
• Interim DPS of 1 S-cent maintained

Significant growth in PATMI

QAF reported its 2Q16 results, which has deconsolidated the financial results of Gardenia Bakeries (KL) Sdn Bhd (GBKL) as it is now a 50% held JV entity of the group following the sale of the group’s 20% stake in GBKL as announced in Apr-16. As such, 2Q16 revenue was 17% lower at S$208.4m. Notwithstanding the deconsolidation, sales increased for all business segments (Bakery, Primary Production and Trading & Logistics).

Expenses also decreased as result of lower raw material costs for Bakery and feed costs for Primary Production, in addition to the deconsolidation of GBKL. Excluding the one-off gain of S$9.7m from the sale of 20% stake in GBKL, core PATMI still saw an estimated increase of ~56% to S$19.1m, underpinned by improved profitability in Rivalea (primary production segment).

Keeping in mind of licensing agreement with GBKL

Recall that in Jun, the licensing agreement relating to the grant by QAF to GBKL to use the “Gardenia” trademarks on bread and other bakery products manufactured in Malaysia had been renewed for another five years to 31 Mar 2021. On the other hand, the licensing fee payable to GBKL to QAF has been reduced from 5.25% to 1.5% of gross sales of each approved bakery owned and operated by GBKL. Thus while QAF gets a lower licensing fee, this would be partially offset by a higher share of contribution from JV. This quarter, we saw S$1.81m of share of profits from JV.

Rivalea continues to perform too

Notably, Rivalea’s improved sales was driven by both higher volume and ASP. Helped by better product mix as well as lower operating costs, this led to better profitability for another quarter.

Staying positive on the stock

The stock has done well thus far, giving a YTD return of 12.8% vs. STI’s -0.5%. An interim DPS of 1 S-cent has also been declared, similar to last year. Given the above, coupled with generally favourable feed prices outlook, as well as continued capacity expansion plans, we have raised our estimates upwards, bringing our fair value estimate slightly higher to S$1.33 (previous: S$1.27). Maintain BUY.  

Source: OCBC Research - 16 Aug 2016