Food Junction

[dydx]

why would foodjunction be attractive at this price level when its net profit margin, return on equity are quite low at
5.2% 9.8% & PE about 21 based on the most recent financial data (YTD 3Q) available.

It pays to take a good look into Food Junction's numbers, the Q3-FY10 results announcement, and the corporate website to appreciate the scale of the group business.....
http://info.sgx.com/webcoranncatth.nsf/V...5003AD0F0/$file/FoodJunction_Announcement_3Q2010Results.pdf?openelement
http://www.foodjunction.com/

Based on the reduced issued share base of 128.633m (after the latest share buy-back) and the last done price of $0.21, Food Junction now has a market cap of only $27.0m.

The relevant question is: Is this a fair market valuation for an established F&B group - and probably still the largest food court operator in Singapore - having a revenue base of approx. $45m p.a. and a projected PBT of approx. $3.0m in FY10, generating approx. $5.0m p.a. in aftertax FCF (before capex), and having a latest (as at 30Sep10) NAV of $30.7m, including a nett cash reserve of over $10.0m?

I think the answer is pretty obvious, and I suppose that's why Food Junction's management and BOD are willing to use a small portion of the company's cash rerseve - normally kept to fund business expansion - to buy back its own shares when a good market opportunity surfaced last week.

[Drizzt]

their problem have always been execution and ideas. while other food companies were growing, the current shareholders were not rewarded in profits and cashflow.

[kazukirai]

The relevant question is: Is this a fair market valuation for an established F&B group - and probably still the largest food court operator in Singapore

Hi Dydx,

I'm not quite sure which which aspect you're referring to? Largest in scale or largest in market cap or are you going by some other metric? Would be great if you could clarify this.

It seems to me, from cursory glances at their websites, that Koufu and Kopitiam both have more outlets than FJ. Also, Breadtalk (while not entirely a foodcourt operator, has a higher market cap than FJ.

[Drizzt]

imo right now its almost valued at 9 time EV/EBITDA. is it undervalued? for a company which cashflow is know i dun think that is the case. if it gets down to 6 times EV/EBITDA then we might ahve a winner here. the market cap then would be 18 mil. it will have to fall 30% from current.

[dydx]

I think we have to bear in mind that Auric Pacific Group (also listed on SGX; controlled by Lippo), in its partial offer made in 2008 to increase its stake in Food Junction, offered $0.55/share, and managed to attain its present controlling shareholding of 57.8%.....
http://info.sgx.com/listprosp.nsf/5ec09b...00036967a/$FILE/APG%20Strategic-OffDoc-Casting.pdf [Auric Pacific's Offer Document]
http://info.sgx.com/listprosp.nsf/5ec09b...c0029913e/$FILE/Food%20Junction.pdf [Westcomb Capital (as the appointed IFA)'s opinion of the offer]

While from hindsight, Auric Pacific could have paid a high price for its incremental stake of 27.9%, the $0.55/share price offered was a well considered price (by both Auric Pacific and its financial advisors) and a fair price (as assessed by Westcomb Capital, acting in its appointed role as IFA).

While Food Junction's current profitability is nothing to shout about, we have to bear in mind that the company has been burdened by a few unprofitable F&B ventures and outlets (including overseas) entered into by the previous CEO (since retired). The good news is that the present management jointly headed by David Lim and John Chang (both experienced professional managers) has made great efforts to update and improve Food Junction's existing business operations, and to grow again by way of selective acquisitions. Based on Food Junction's present revenue base of approx. $45.0m p.a., a potential 2% improvement in the group's operating profit margin will translate into another $900k in PBT.

Food Junction now operates a total of 18 well-established food courts in Singapore, Malaysia, Indonesia and China, plus a Japanese restaurant (Tetsu) in Singapore, a small American cafe & restaurant chain (Malone's) in PRC, a popular Chinese restaurant (Lippo Chiuchow Restaurant ) in Hong Kong, and a few small but promising F&B formats (Toast@Work coffee shops, EZ Cooking Studios, etc.).....
http://www.foodjunction.com/us/business-profile/

I guess the total replacement cost for the current F&B outlets alone may well exceed Food Junction's current market cap. of $27.0m.

[dydx]

Today (13Dec10), the company bought back another 367 lots from the open-market at $0.205/share.....
http://info.sgx.com/webcorannc.nsf/Annou...endocument

Based on the total 1836 lots done today within the price range $0.205 - $0.22, with the bulk done at $0.21, we can draw 2 conclusions -

1. Food Junction did not try to support the share price.
2. There are many others (including me!) who managed to pick up some cheap Food Junction shares today.

[MrValue]

Among food junction's competitors,
KopiTiam operates at over 80 locations in sg and it's founder Lim's rag to riches story is truly inspirational.
Www.KopiTiam.biz

Koufu is also led by another entrepreneur-manager Lim who has worked his way up starting from kitchen helper to coffeeshop n now food court n rest owner.
http://www.koufu.com.sg/index.php?option...9&Itemid=2

Food junction was largely setup by George quek of breadtalk, but he has since divested his stake, and now his food republic is in direct competition w FJ.

The question on my mind is whether the professional managers of FJ can outwit the entrepreneurial owner-managers of KopiTiam, koufu and breadtalk in the increasingly competitive food court business.

[cif5000]

Among food junction's competitors,
KopiTiam operates at over 80 locations in sg and it's founder Lim's rag to riches story is truly inspirational.
Www.KopiTiam.biz

Koufu is also led by another entrepreneur-manager Lim who has worked his way up starting from kitchen helper to coffeeshop n now food court n rest owner.
http://www.koufu.com.sg/index.php?option...9&Itemid=2

Food junction was largely setup by George quek of breadtalk, but he has since divested his stake, and now his food republic is in direct competition w FJ.

The question on my mind is whether the professional managers of FJ can outwit the entrepreneurial owner-managers of KopiTiam, koufu and breadtalk in the increasingly competitive food court business.

Just wondering...if I were a mall and I want a food court operator, would I care if they have 80 or 8 other locations? If I have a Kopitiam card and I am in the mall with a Food Junction, would I choose not to eat there if I intend to go food court?

I don't know.

[Blackjack]

Valid point, there probably isn't 'brand loyalty' from a consumer's perspective. However different operators may prefer a different tenant mix, layout and atmosphere in their premise, so there may still be a differentiating factor...

Personally I don't really like Food Republic for instance, find their food is so-so and somehow feel I am over-paying... Hence I would sometimes prefer to spend a bit more and eat elsewhere if that's the only food court available.

[kazukirai]

Just wondering...if I were a mall and I want a food court operator, would I care if they have 80 or 8 other locations? If I have a Kopitiam card and I am in the mall with a Food Junction, would I choose not to eat there if I intend to go food court?

I don't know.

If I were a mall...
then No. I wouldn't care how many locations the operator has. I probably care more about how well the operator operates the food court. What are the kind of stall-holders the operator attracts to rent stalls in the food court.

IMO, Kopitiam does a terrible job at attracting good stall holders.

If I were a shopper in a mall and intend to eat at a food court...
Nope too. Wouldn't skip it just because it's a FJ instead of a Kopitiam.