I got my annual food junction annual report yesterday and had a read. A year ago I wrote that this could be a value play, but only if management sort out their biggest bugbear:Operating Lease cost.
Since then they have expanded their Mediterranean restaurant MEDZ, LP+ Tetsu and other new food themes.
The net profit went down from 2.6 mil to 916k. What can we mainly attribute to? a 22% increase in operating lease expenses and a 25% in staff costs.
The more i see companies like Tung Lok, Thai Village and Food Junction, i wonder why people say you can surely make money with food. It seems that hiring high grade chefs and premium location doesn’t mean you can sell and maintained your profit margin.
Getting tired seeing my 2003 dividend payout of 6 mil go down to 318k in 9 years. Talk about slowly bleeding.
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Friday 18th of May 2012
the concept of Medz is probably analysis after seeing how Marchie was able to take off.
I agree that some would fail. but as shareholders, you have to see that they are balancing sustainability and experimentation well. to me they are really doing big bangs and hoping most hit it off.
i am probably not an expert here since they have more people inside that knows the business better than me. but that thought alone and seeing the performance scares me about the food business as well haha
Friday 18th of May 2012
I get the feel they will stretch the Chinese restaurants sooner or later, but perhaps differentiate it with a unique location or experience. For now I get the feel they are pursuing a lot of different unique concepts and see what sticks, rather than to copy where others are strong in. There are of course risks and potential returns doing so.
Mediterranean food may not be too bad an idea. Orchard Central is rather sleepy but they've got a good rent for a test-bed. The Millenia Walk Medz actually seems to be doing quite well with the working crowd around the area, packing them in during lunches and apparently for drinks after work. And they supposedly got a manageable rent for it as well.
That said whether all these translate into profits down the road, it's still hard to tell. This year will likely be see fair bit of startup costs with numerous concepts opening (as we see in Q1). The ideas, from what I read so far, are pretty exciting. But investors will need to be patient to see how they pan out.
Thursday 17th of May 2012
The company should focus and tap on their chinese restaurant Li Bao Xuan, Li Xuan and opened one outlet in Singapore and Malaysia instead of opening additional Medzs restaurant at Millennia Walk. Mediterranean food is not that popular and may pull down the P/L in long run. Generally speaking, customers would patronize chinese restaurant with their family to celebrate mother's day, reunion dinner etc as it involves elder member of the family.
Opening new concepts is easy but there must be due diligence done. Having said, hope to see better performance in the next FY.
Tuesday 8th of May 2012
Not that i disagree. I track the company closely and sorta have a good feel of where the problem spots currently are. The FY11 writedown is pertaining to a majority of those (particularly in China) which were undertaken by the last management.
That said, with new concepts opening, it's almost certain that at least some will be unsuccessful and that'll necessitate writedowns. I guess that's not too different from investing: invest in a range of concepts and hope and you get 1-2 multi-baggers that you can expand on, that'll more than offset the costs of the failed ones.
I like the current management team's vision and the revival it is staging, but it'll take time (and some trips along the way) before we see it on the P&L. Or maybe not.
Tuesday 1st of May 2012
Actually the blog was inaccurate. Increased lease and staff costs are partially due to startup costs with new concepts, some which just started operations. So in case it is implied, rental costs going up 22% and staff costs going up 25% does not equate rental rates up 22% and each staff taking home 25% more. The top and bottom-line impact of these new concepts will become clearer in the next FY.
The main reason for the profit drop is due to some writedown related to the cessation of some loss-making Chinese businesses, which total slightly over S$2m in the FY.
That said, I agree that food business is not an easy sector to be in.
Tuesday 1st of May 2012
hi Wee Kee, i believe on and off there are always some form of impairment and write off. But pulled it long, you have to say that the rental costs was a really big bugbear.