QAF FY2018 results

PAT comes in st S$8.65 million, a drop of 71% from S$30.4 million in FY2017.
Gross margin is at 39% vs 42% in 2017.
EBITDA margin is at 5% vs 8% in 2017.
Balance sheet is still strong, with current assets of S$320 million > total liabilities of S$270 million.
Cash flows from operations of S$20 million vs S$61 million in 2017.
Dividend was maintained @S$0.05/ share

All in all, not a good set of results.
Is it within expectation? Yes, given that the results for past 3 quarters have been terrible. In fact, Q4 results seem to indicate a bottoming out with prospects for recovery ahead.
Is share price a good value? Price has dropped in the last year, trading below NAV of S$0.89. However, there are still headwinds facing the company.

Comfort factors
- Strong balance sheet. Cash balance of S$60 million.
- Operating cash flow is still positive
- Gross margins are respectable at 39%
- Defensive business (Bread + Pork are "commodities" in nature)
- Dividend yield is good and management did not decrease the payout despite the performance of the company.
- Corporate governance of QAF is still strong. I like that it is transparent in the directions of the company. It also mentions that Australia's pork cannot be exported to China despite the Swine flu affecting supplies in China. The optimists will think that it is potentially an area of growth for Rivelea if the regulations change.

Concerns
- Rivelea business is not picking up. Commentary indicates some stablising of the pork prices but that does not equate to recovery. Will swine flu hits Australian's pork? That will be a big hit to Rivelea.
- Commentary indicates that management is looking at acquisitions. Will this erode the balance sheet strength? This ties in with the point below which is below the most worrying piece.
- How competent is the management? Share forums have been lambasting the management for their inexperience and the performance of the company in the past few years has not helped the cause of the management.
- How sustainable is the dividend? From the financial statements (and without much calculations), the payout is higher than the net profits and the operating cash flow. If company does not turn around the results in FY2019, dividends may need to be cut.
- Gardenia bread has been a staple in Singapore's supermarkets for the longest time. However, on my regular visits to the supermarkets, I cannot help but have a preference for the bread from Auric Pacific (Sunshine). The marketing from Sunshine just seem sleeker.
- Bakery business seems to be going well in Phillipines which is great because it is a growing market and the economy seems to be doing well. However, we have to keep in mind that Phillipines is a country with a higher degree of political risk.

Next move?
- To hold on to current position and re-assess the performance of QAF in the coming quarters.
- It seems to be the kind of defensive business with a strong moat that do not require the best management to run. However, if the markets continue to move against QAF (and aided by an inexperienced management), then the moat will get smaller.