Investment Moats

Food Junction 3rd Quarter Results

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This company, which i thought was a gem when i started investing 4 years ago, have been stagnating or even deteriorate during the past 4 years.

ROIC and Margins were decreasing but the biggest problem have been execution in overseas market. While BreadTalk have been doing well in this realm, Food Junction have struggle with its overseas exploits.

So how did they do for this 3rd quarter? From the profits garner you would think they have improved.

Net profit was 1 million vs 657 k for the 3 quarter in 2007. However, there was a provision for loss on disposal of 1 million taken in 2007. This explains why despite revenue being the same and cost increasing, they have done better.

As a criteria of a good dividend counter, its operating cashflow should be increasing and here you will see that operating profit have actually gone down from 3 million to 1 million. Exactly opposite that of the income statement.

At the cashflow statement, you can see that expenditure have increased from last year. the free cashflow is a negative -200k vs 2.4 million from previous year. This would explain why for this quarter, Food Junction will give out 1 ct dividend vs the normal 2 ct it traditionally give.

The group have accepted an offer to operate a food court at The Gardens, Mid Valley city located in Kuala Lumpur, but i am not expecting this to make an impact on full year results.

Going forward, the impact of Lippo Group on Food Junction seems to be rather lukewarm. You would expect some sort of synergy with them and more ventures into Indonesia and all but the results have not translated to an improving bottom line.

Rather, now Auric Pacific have came in with a partial offer to buy some of our shares at 55 cts. That is much less than the average 63 cts i paid for it.

All this translates to food junction being worse and worse as a dividend play. Rather than sustaining good operating cashflow they have been destroying shareholders’ return with ventures that add less returns compare to their singapore operations.

Based on current price, it looks a good company with high ROIC and zero debt. However, my 4 year affair with it tells me that it will take me more than this to make me add on to it. Key that i am looking at is improvement in business execution. With an improvemnt in that area, the cashflow will come and that will improve my view of this company as a dividend counter.

This counter is on my dividend Screener. Do bookmark this link and follow its daily fundmental changes vs its  price changes.

Courage Marine 2nd Quarter Results

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Just 2 weeks ago there have been a slew of results release on companies i own and i plan to write about them. It just that work have been pretty busy thus i can only update briefly here until now.

The first company i am covering is Courage Marine. despite the fall in Baltic Dry Shipping Index, results have been pretty strong.

  • Profit for the period improved by 67% from the previous year.
  • Operating cashflow generated was  20 million vs 7.8 million from previous year.

Freight rates have been very volatile during the past few months, with the BDI collapsing to the 5,600 level during the end of January this year after climbing to an all-time record above the 11,000 level from November 2007. The BDI is currently at around the 7,000 level. The Group believes that the market conditions will remain positive based on the perceived strong demand from China for raw materials.

We sent four vessels for dry-docking in 1H08 and they were out of deployment for a total of about 120 days. We expect to send two more vessels for dry-docking during 2H08 and they are expected to be out of deployment for a total of approximately 90 days.

The Group will maintain its cost-efficient structure and focus on keeping its fleet well deployed and running efficiently. Assuming that the BDI stays at around the current level and barring any unforeseen circumstances, the Group expects to continue to do well in the second half of FY2008.

Despite the cyclical nature of the shipping industry, Courage Marine’s strategy to concentrate on cost and not taking unnecessary risks can either be seen as prudent or they could be viewed as gutless to take advantage of the commodities boom to ride the wave.

I like a company that is prudent but not taking advantage of the opportunites out there does not go down welll with this investor. However, when u have a high ROIC such as Courage Marine, you don’t question too much how they earn their beef since you know you probably knows much much less than these managers who have been doing shipping for such a long time.

Courage Marine is one of the stocks on my dividend screener. Here i use a rather conservative dividend per share since shipping stocks like Courage and Singapore Shipping are prone to really good times and givign out one time big dividends. That is not what we want on my dividend screener. What we want is a consistent high yield or at least a good yield of 6-7% that is increasing yearly. This would explain why the yield based on current price is just 6.7%. Lets just say that my div yield is almost 20% from the last payout.

Courage Marine generates a good operating cashflow and have rather low expenditure. Most likely, payouts will continue long term at 6-7% with the occasional big payouts.

At current price, its EV/EBITDA is only 3.2 times, which means if you believe this cyclical shipping boom will last at least 3 years, it will take 3 years of zero operating growth to earn back what you pay for this company.

Do be advice to rational your valuation on cyclical shipping play. Your yield depends on your entry vs the cyclical nature of the industry. Ensure you do not buy it at a high premium.