SINGAPORE (Aug 10): OCBC is ceasing coverage of QAF as the group redistributes its internal resources amid rising competition, currency volatility and costs.
Better known as the maker of Gardenia bread, QAF’s business can be divided into four major segments, namely bakery, primary production, trading & logistics and investments & others.
In 2Q17, QAF reported a weaker set of results. Revenue was up 1% to $209.8 million but PATMI tumbled 72% to $8.06 million compared to $28.8 million in 2Q16 which included an exceptional gain of $9.7 million.
See: QAF reports 72% fall in 2Q17 earnings to $8.1 mil
Across all the group’s segments, EBIT decreased due to higher distribution and A&P expenses for Bakery while Primary Productions saw lower prices and weaker profit margins.
Due to the deconsolidation of GBKL results and excluding the one-off gain in 1H16, the group’s 1H17 revenue was down 8% while PATMI also dropped 37% to $22.3 million.
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In a Thursday report, analyst Jodie Foo recalls that the management has guided for potential cost pressures this year, particularly for the Primary Production segment as the group expects performance to be affected by competition, currency volatility and higher raw material costs, energy and distribution costs as well as other operating costs.
Despite higher volume, general oversupply left significant pressure on prices and margins, resulting in lower average selling prices. However, the group says it is currently seeing some signs of stability.
“All considered, the near term outlook looks challenging. Nonetheless, the group is also making meaningful expansion plans and strategic initiatives,” says Foo.
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The group earlier announced that it has decided to pursue a listing of the Primary Production business on the Australian Securities Exchange to increase its shareholder value and enhance the profile of its subsidiary, Rivalea, in its core market. However, there is no assurancce the proposed listing will materialise.
As at 11.36am, shares in QAF are trading 4 cents lower at $1.26.
