5 Investment Ideas From Food Shopping

For most guys, when it comes to ‘Shopping time’ with our better half – with all the waiting and carrying stuff involved, it might not be the most exciting times of our life, especially when it is the weekends and its crowded all over the place. Same for me.

However, with a change in mindset, I soon realised how walking around the mall could actually help in my investment journey. Other than sourcing for investment ideas, you could also do some good on-the-ground due diligence, for example, are the shops teeming with customers, is the shop design presentable and maybe for some extreme cases – is the shop really there LOL. If you remember our recent article 10 Investment Ideas From 1 Supermarket Visit, I followed the same principles to see what I could find from my neighbourhood mall – CapitaLand Mall Trust’s very own Tampines Mall.

With the results, I think I would be much happier walking around in malls more often from now on 🙂

Without further delay, here are 5 Investment Ideas from going food shopping!

ABR Holdings Ltd

Swensen's

Swensen’s, Tip Top, Season Confectionery & Bakery and Hello Kitty Orchid Garden. Other than being F&B retailers, what do they have in common.

Hello Kitty Orchid Garden was included just to throw you off. LOL.

If you haven’t already realised from our title, all of the above F&B outlets are run by SGX listed ABR Holdings Ltd.

If you are looking at a pure play F&B business in Singapore, with close to 100% of their FY2015 revenue from the Restaurant and confectionery business, ABR is as close as you get to one. And with an OPM of ~10% from this segment, things don’t look too shabby for ABR Holdings. To boot, ABR has a rather clean Balance Sheet as well. In FY2015, they had cash and Fixed Deposits of over S$82 million and 0 borrowings. That’s about as strong a balance sheet that you can get. For a comparison, they had a current market cap (Jun 2016) of S$140 million. So their Cash and Fixed Deposit made up over 50% of their market cap!

From their historical performance, ABR appears to be rather decent operators of their F&B retail business. However with flat-ish top line growth in the past 3Y, our question might then be – where will they be looking for growth next?

Auric Pacific Group Ltd

Sunshine

Does Auric Pacific ring a bell? Well maybe after we tell you some of their brands, things might be much clearer to you.

Think Sunshine bread. Not only does Auric Pacific own Sunshine bread, they are also the manufacturer of Top One breads!

But with their bakery business making up only 12% of FY2015 revenue, they were much more than bread makers. Auric Pacific split their business into 5 key segments:

– Wholesale and Distribution (brands like Kellogg’s, Heinz, Abbott, Mondelez, Ovaltine and much much more)
– Manufacturing (Sunshine, Top One and other house brands like SCS):
– Food Retail (Delifrance and other cafes and bistros):
– Food Court (Food Junction and other restaurants):
– Investments

Although Wholesale and Distribution made up 56% of their Group’s FY2015 Revenue, it is a very low margin business with segment results of S$10 million. This was out of their Wholesale and Distribution Revenue of S$243 million or an OPM of just 4%.

However, results in the past few years were not what the Group had expected. Finally in 2015, Auric Pacific bit the bullet to rationalise their non-performers and streamline their business. In layman’s terms, their diversification plan into new areas did not look promising going forward so they decided to cut their losses. For perspective, their FY2015 net income to equity holders was negative S$41 million. This was a net profit margin of close to -10%! This was especially evident in their Delifrance and Food Junction businesses. You could say that their Food Retail segment single handedly contributed to the Group’s loss with a contribution of over -S$45 million in 2015!

Fun fact: Auric Pacific’s main shareholder is none other than the Riady family with Dr Stephen Riady at a deemed interest of 49%. To refresh your memories, Dr Stephen Riady is not only on the board of some of the Lippo group of companies, he is also on the executive chairman of OUE Ltd – the owner of Marina Mandarin Singapore.

Breadtalk Ltd

Breadtalk

Listed in 2003, Breadtalk today has close to 1,000 F&B outlets across Singapore, Mainland China, Hong Kong, Indonesia and Thailand supported by over 7,000 people. But did you also know that Breadtalk is more than just a bakery?

Although Bakery made up 49% of their Revenue, they had 2 other core segments that brought home the bacon. The 2 other core segments are Restaurants (23%) and Food Atrium (28%).

– Bakery (862 stores): Breadtalk, Toast Box, Bread Society, Thye Moh Chan, The Icing Room
– Restaurant (30 stores): Din Tai Fung, RamenPlay
– Food Atrium (65 stores): Food Republic

Following Thailand’s Minor Food Group 11% strategic stake in Breadtalk back in 2013, Breadtalk embarked on a 50:50 JV to operate a bakery business in Thailand. Looks like Thailand might become a rather significant price of business for Breadtalk. As it is today, you could still describe Breadtalk as a Singapore centric F&B business with over 50% of revenue still coming from the Lion City.

Recently, Breadtalk has also been going into property investments. For example the 5.31% stake in AXA Tower, CHIJMES, TripleOne Somerset and Beijing Tongzhou Integrated Department. In 2015, Breadtalk divested their stake in 112 Katong at a pre-transaction cost gain of S$8.5 million.

Fun fact: Shanghai Disney Resort announced that Breadtalk and Toast Box will be amongst the first of several dozen tenants for Disneytown.

Eu Yan Sang International Ltd

Eu Yan Sang

You could say that Eu Yan Sang is a household name right here in Singapore. Started in 1873, the founder Eu Kong set up a shop dispensing quality Chinese medicine and herbs to free tin miner coolies from the clutches of opium suffering. ‘Yan Sang’ literally meant ‘caring for mankind’ in Chinese. However, it was only when his son – Eu Tong Sen took over things started to boom expanding beyond the shores of Malaysia into Singapore, Hong Kong and China. Does Eu Tong Sen sound familiar, well he should be, there’s even a street named after him! Here’s some history lesson, Eu Tong Sen was a leading figure in tin mining and rubber plantation in the 1920’s.

However after Eu Tong Sen passed away, Eu Yan Sang was in limbo for quite a period of time until 1989 when his grandson Richard Eu joined Eu Yan Sang Holdings. He led the charge to modernize Eu Yan Sang into the modern day Chinese medicine shop – bringing a modern and scientific approach to their traditional TCM operations. Since then, Eu Yan Sang has ventured into TCM, manufacturing facilities, research collaborations with universities and even collaborations with MNCs like Nestle to produce herbal soups! In 2010, they acquired Australian listed Healthzone, becoming a leader in Australia’s mainstream wellness industry. As at 31 December 2015, their 252 Retail Outlets made up 81% of the Group’s revenue.

Financials-wise, Eu Yan Sang have not been enjoying the best of times in recent years. On the bright side, Gross Margin maintained ~50%. However for the past 5Y, higher expenses have caused PBT margin to steadily decrease from 12% (2011) to 3% (2015). To place things in context, over the past 5Y, PBT decreased 63% from S$33 million to S$12 million.

This might be due to the worsening business conditions and increase in debt over the past 5Y. Although Assets doubled to S$392 million, in the same breath Liabilities tripled from S$79 million to S$232 million. This has caused interest payments to swell up to almost S$6 million a year! That’s like 50% of their 2015 PBT. Bad business conditions and leverage is not a good combination.

Since 2013 till end-2015, their share price came down from the peak of over S$0.9 to S$0.3 per share. It was not the most fun of times for shareholders with the company since 2013. However, this all changed in 2016. On May 17, 2016 a consortium led by a UOB backed fund, a Temasek Holdings unit and Eu Yan Sang’s CEO Richard Eu launched a takeover bid for the company at S$0.60 per share.

Japan Food Holdings Ltd

Ajisen Ramen

Since 1997, Japan Foods has been serving authentic Japanese Cuisine since they brought the Ajisen Ramen brand to Singapore. What’s unique was that the launch of New ManLee Bak Kut Teh in 2015 – their first non-Japanese concept store. Maybe the rather flat top line over the past 3Y prompted this new venture. How well will diversification be for Japan Foods new venture? I guess we just have to wait to find out.

Anyhow, Japan Foods operates 46 restaurants in Singapore and the following are some of the more famous stores (Franchised and Self-developed) under their banner:

Franchised Brands: Ajisen Ramen, Botejyu, Menya Musashi, Menzo Butao, New ManLee Bak Kut Teh, Osaka Ohsho
Self-Developed Brands: Fruit Tart Shop, Ginza Kuchi-Katsu, Japanese Gourmet Town, Tokyo Walker

Despite their expansions and new ventures, their flagship Ajisen Ramen was still the core producer making up 44% of their FY2015 revenue. Also we think that it is rather impressive Japan Foods’ FY2015 GPM was 83.4% and their Annual Report highlighted that it was possibly one of the highest GPM enjoyed by a restaurant operator in Singapore. It was highlighted that this was largely due to their in-house noodle production facility.

We also like their strong balance sheet. At a market cap of S$68 million, Japan Foods had cash of ~S$16 million with 0 borrowings. Sounds like meeting their dividend policy of not less than 40% of the Group’s audited net profits attributable to shareholders might not be an issue for them.

Something many people might not know is that Japan Foods was also a non-controlling shareholder of a subsidiary of the much larger HKSE listed Ajisen (China) Holdings Ltd (market cap of over HKD3.5 billion). And Japan Food’s Executive Chairman – Kenichi Takahashi owner 66% of the Company sits on both the Board of Japan Foods and Ajisen (China) Holdings Ltd .

“Shopping for food just got alot more interesting for me”

Respective Product Photos: Respective Company Annual Reports

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We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities.

Mun Hong is not a shareholder in any of the above mentioned companies.

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