Auric Pacific Group Limited - Is ex-SMRT chief priming the company so Lippo can sell its big stake?

22/2/2013 – Saw Phaik Hwa's departure as CEO of SMRT may have been welcomed, but so was her arrival at Auric Pacific in May last year.

The stock has shot up almost 90% since then and it is now trading at a price to book value of 1.31 times.

Auric Pacific had been trading at a 70% discount to its book value, when Investor Central last covered the company in November 2011.

BACKGROUND

Auric Pacific is the company behind Delifrance and Food Junction, of which it owns 61%.

These contribute more than one-third of sales.

It also owns Sunshine Bakeries and Japanese restaurant brand Tetsu in Singapore, and Malones American Café in Shanghai.

Marketing and distribution of packaged consumer food and beverages (F&B)products including fine wines, beers and meat, accounts for 60% of revenue.

The rest is mainly investment income.

Question

1. Has the food retail segment made a profit in FY12?

Auric’s topline has been stagnant in the last three years except for manufacturing and food court operations.

While profits have grown in 2010 and 2011, most of the growth has come from investments and other income.

Annual reports for the last three years also highlight that the food retail segment has been making a loss for the last three years.

In addition, the margin in its wholesale and distribution segment has been in low single digits, indicating high cost pressures.

While it was difficult to find out segmental profit and margin information in Auric’s quarterly earnings, we managed to come to a conclusion that its food retail segment’s margin was still very thin – at best.

Auric has talked about revenue growth in this segment as it opened new outlets, but it didn't say how profitable they were.

Question

2. Was Saw Phaik Hwa the exact person Auric needed?

Based on her experience in DFS from 1998 to 2002 and SMRT from 2002 to 2012, Saw may be a good fit for Auric.

This is already visible in the stock’s outperformance since she came on board.

When she was at SMRT, she was instrumental in driving property rental and advertising revenue from 20% to 25% of operating profit to more than 50% in 2012.

Question

3. Could we expect a similar increase in dividend from Auric?

SMRT raised dividends from3.1 cents per share in FY03, the year she joined, to a peak of 8.6 cents per share by the time she left.

Auric Pacific paid a dividend of 3 cents per share in FY10 and FY11.

So, will we see history repeated?

Question

4. Will Lippo group stay invested if Saw turns Auric around?

Auric was the Riady family’s first listed vehicle in Singapore in 1997, but its flagship is now Overseas Union Enterprise and most of the family money is now in property.

Its retail and F&B businesses accounted for only 4% of the earnings of its parent company, Hong Kong-listed Lippo, in 2011.

Maybank Research highlights that Saw’s key mandate might be to turn the company around, so the Riady family can sell out.

It currently owns 71% of the stock, directly through Goldstream Capital Ltd and indirectly through Lippo's 49% stake.

After all, food is a negligible part of Lippo’s vast business interests and Auric Pacific is no longer the family’s flagship in Singapore.

Question

5. Whether Lippo stays invested or not, will Auric Pacific become a strong force in retail?

And is that even the aim?

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

Sources & further information

Sources

Q3 results
Annual report FY11
Maybank Research Report


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