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Good entry price for QAF Limited?

Tuesday, January 31, 2017

Reader:
"Hi, I found out abt ur blog thru Remove Sabana Mgr fb grp. Thks for sharing CNY video from Gardenia. I din know abt QAF. What is ur ave price? Do u think this $1.41 is gd to enter?"

AK:
"What is my average price for QAF Limited? Is $1.41 a good entry price? Alamak! I am not a guru and I just anyhow do valuation. You have been warned. Er, I anyhow talk to myself in my blog later."


OK, I start talking to myself now.


What is my average price? I don't know. I have never bothered to find out. I could but I just don't bother. AK is lazy. Regular readers know I don't care about average prices.

I do know I have been a QAF shareholder for many years and I first bought some shares at 60+ cents a share donkey years ago because I wanted to eat free bread. Mental? Must be.

Is $1.41 a good price to enter? I don't know about price but I probably can say something about value.

QAF 3Q 2016.
Q2 2016 EPS was 5.1c. 
Q1 2016 EPS was 2.9c.
(Hyperlinked. Click on above links to read quarterly announcements.)

So, for first 9 months of 2016, total EPS was 11.4c. 

To put things in perspective, full year 2015 EPS was 9.4c. 

So, buying more at $1.03 a share in 1H 2016 meant paying a PER of under 11x. Yes, that was the last time I bought more QAF shares.

Now, with only 9 months worth of earnings in 2016 (i.e. 11.4c a share), assuming Q4 does not turn in a loss and we have zero earnings in Q4, 11x PER would give me a price of $1.25 a share or so. 

If Q4 were to turn in pretty decent earnings which I think it would, of course, based on 11x PER, the price should be higher. If Q4 turns in an EPS of 3c, I would get a price of $1.58, for example.

Now, for a dash of excitement, if I remember correctly, when Mr. Market was feeling a bit happier in the past, QAF Limited was valued at about 14x PER which would give us a share price of almost $1.60 a share based on EPS of 11.4c (i.e. with no contribution in Q4). 

What if we were to add EPS from Q4? 3c EPS in Q4 maybe? That would give us $2.02 a share at 14x PER.

OK, I am beginning to talk nonsense. What? Will it happen? Alamak, don't ask me things about the future. I don't know.

I will say that getting in at $1.41 a share with the thought that share price is probably going higher in the next few weeks or months has a strong speculative flavour. There is nothing wrong with a bit of speculation, I always say, if sized properly.

Now, seriously, go read the quarterly reports for yourself and see why earnings went up as much as they did. Don't just eavesdrop. 

AK is mental. Remember?
-----------------------------
Added 7.55PM (31 Jan 17):
Bad AK! Bad AK! 
Related post:
Breadtalk, Old Chang Kee and QAF Limited.


Watch CNY video clip from Gardenia: HERE.

18 comments:

Sanye ◎ 三页 said...

Hi AK,

Happy new year! Gong Xi Fa Cai!

Your talking to yourself caused QAF price to surge today? Anyway I happy to see that as a QAF share holder!

Huat Ah!

AK71 said...

Hi Sanye,

Always happy to "meet" a fellow shareholder.

I am quite happy to hold on to my investment even though the price has gone up quite a bit.

恭喜发财😊

Alcus Trader said...

Hi AK,

Happy new year! I have bought QAF more than 3 years ago when I was able to get it at 6% dividend yield on cost.

What's holding me back from accumulating more is the low yield at the current price. :(


AK71 said...

Hi Alcus,

I know how you feel. My initial purchase of QAF has a dividend yield of more than 7% on cost. There was an anchoring effect which I had to overcome before I bought more at $1.03 a share last year.

K said...

amazing... based on today's price up 40% excluding dividend!! *power*

AK71 said...

Hi K,

I believe that QAF is trading at a fair valuation now. It was undervalued before. :)

AK71 said...

Reader:
"AK, have u looked at Auric Pacific before? Its share price is about the same as QAF now."

AK:
"Why QAF and not Auric Pacific? I think QAF has done a better job creating value for shareholders over the years. Auric Pacific indulged in diversification which turned out to be "diworsification" as Peter Lynch would put it.

"Auric Pacific stop paying dividends while QAF has been a consistent dividend payer which is important to an investor for income like me. Having said this, Auric Pacific seems to be doing better in recent times.

"Auric Pacific's 9 months 2016 EPS is 5.98c. Even if we were to strip out one time gain in first 9 months, QAF's EPS would be about 60% higher than Auric Pacific's.

"Same price? Which one to buy? It would depend on what you are looking for."

http://infopub.sgx.com/FileOpen/SGXNet%20Q3%202016_FINAL.ashx?App=Announcement&FileID=428278

AK71 said...

I believe Auric Pacific's share price is driven by insider buying and also speculation that it could be privatised. If Auric Pacific should achieve a full year EPS of 8c, trading at $1.44 a share translates to a PER of 18x. Imagine what QAF should trade at if Mr. Market were to apply a PER of 18x.

Kyle Chen said...

Hi AK,

I don't think it's proper to compare Auric with QAF just based on current PER when Auric is going through a significant restructure. Auric's diworsification in the past still made it suffer right now. it has changed management in the past two years and the new management team clearly were trying to refocus to the core profitable business. If we only look at PBT and operating cash flow of core business, it's in a lower valuation compared to QAF. The market expects that Auric is able to divest all the non-profitable business, keep the cash flow of current core business and maybe able to grow current core business gradually.
Of course, QAF has a much better track record than Auric, which deserves a better valuation.

Kyle

AK71 said...

Hi Kyle,

Things are looking up for Auric Pacific. That is true. Still, it would be a mistake to look at only its profitable core business in valuing Auric Pacific. Buying based on expectation has a speculative flavor and we will have to hope that Lady Luck smiles on us. ;)

AK71 said...

Reader:
"Hi AK,
QAF price is up a lot. I din know u going to share my msg in ur blog. I din buy at $1.41. Is this $1.51 gd to enter?"

AK:
"I hope you don't think it is my fault that the share price went up. I don't know if $1.51 is a good price for you. I will say that Mr. Market is valuing QAF fairly now whereas it was undervalued when I bought more at $1.03 a share. You might want to read this blog and my past blogs on QAF again, paying attention to how I used PE ratio to help me make decisions. I would also encourage you to sign up for Dividend Machines: HERE if you are serious about becoming an investor."

AK71 said...

This explains the insider buying that has been going on in Auric Pacific:

"The controlling shareholders of Auric Pacific Group Ltd, the maker of Sunshine Bread and owner of Food Junction food courts and Delifrance cafes, have offered to buy the company and take it private.

"The offer was made by Silver Creek Capital, an investment holding entity jointly owned by Dr Stephen Riady and his son-in-law Dr Andy Adhiwana. They are controlling shareholders and executive directors of Auric Pacific, with Dr Adhiwana also its group chief executive officer.

"Their offer price of S$1.65 in cash per share is final, Silver Creek Capital announced on Tuesday (Feb 7) through RHB Securities Singapore Pte Ltd."


Source:
http://www.straitstimes.com/business/companies-markets/sunshine-bread-maker-food-junction-owner-auric-pacific-gets-offer-to-buy

AK71 said...

Assuming a full year EPS of 9c for Auric Pacific, the offer price of $1.65 values Auric Pacific at 18.3x PE ratio.

AK71 said...

QAF posted a 129% jump in its full-year net profit to S$120 million.

Sunny said...

AK Shifu

QAF is getting lower, wondering you have done any change to your holding, raised up or reduced or still the same?

thx

AK71 said...

Hi Sunny,

I am too lazy to make any changes but what you do should depend on what you believe in. ;)

jalan Jalan said...

QAF's Q2 2017 profit plunged 58% (after adjusting for one off gains) during the lower selling price from Riveria.

EPS for 1H 2017 would only be 3.9 cents. If we annualize it, it's 7.8 cents. At 8/8/17 closing price of 1.3, it would be trading 16.6x. It wouldn't considered to be cheap, if you compare the EPS historically.

What are your thoughts on the plunge in Q2 2017 profit?
And if one were to average down, it would be even more expensive as the EPS has dropped.

What are your thoughts on this?

AK71 said...

Hi JJ,

You would probably be interested in this blog:
QAF 2Q17 profit after tax fell 72%.

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