Yahoo Finance 
SI Research: 4 Sweet Spots That Sweeten ABR Holdings
Have you ever passed by a Swensen’s restaurant and have a sudden craving for an ice cream? Apart from the delightful selection of ice cream desserts, the family-friendly restaurant chain with its signature Tiffany lamps also offer an all-day menu for affordable western meals which diners could feast on in a distinctive and cosy ambience. However, few may have realised that this popular franchise brand is actually owned and operated by a company listed on the Singapore Exchange – ABR Holdings (ABR).
Starting with its first full-service Swensen’s ice cream restaurant in Singapore back in 1979, ABR today operates more than 25 restaurants with presence in Singapore and Malaysia, and remains as one of the preferred choice for families and friends looking for good value quality dining. In addition, well-known household brands that came under ABR’s stable also include Tip Top Curry Puffs, Season Confectionary and Bakery, Chilli Padi restaurant, Sticky Wings as well as the Hello Kitty Orchid Garden café that opened at Terminal 3 of Changi Airport in May 2016 which received overwhelming response from both local customers and international tourists alike.
Financial Performances
Despite operating in the challenging food and beverage (F&B) environment characterised by volatility in material costs, escalating rentals and tightening labour market, ABR continues to generate stable revenue and maintain profitability. In the last five years, the group’s top line grew at a compounded annual growth rate (CAGR) of 4.7 percent to $118 million in FY17, underpinned by incremental revenue contribution from additional outlets.
Unfortunately, higher operating costs continue to weigh on ABR’s profit margin as the group battled on amidst intense competition in the local F&B scene. Consequently, profit before tax shrank by a CAGR of negative 4.9 percent over the last five years to $7.7 million in FY17.
Source: Company Annual Reports
In the latest earnings release, ABR’s 1Q18 profit before tax declined by 18 percent year-on-year to $1.2 million despite a 19 percent jump in revenue to $30.5 million. Evidently, higher selling, distribution and outlet expenses as well as administrative expenses were the culprit behind ABR’s margin squeeze.
2. Strong Balance Sheet and Consistent Payout
Nonetheless, we like ABR’s strong and unburdened balance sheet in particular. As at 31 March 2018, the group held $26.9 million of cash and bank balances in record but only has $0.2 million of borrowings. With $26.7 million of net cash on hand, ABR’s strong cash position endows the group with the ability to seek out potential growth opportunities as and when they arise. Furthermore, ABR’s debt-to-equity ratio also stood healthy at 0.24 times.
Over the last five years, ABR has been consistently rewarding shareholders with $0.025 of dividends per share every year without fail since FY13. With the group’s share price of $0.865 as at 3 August 2018, the dividend payout translates to a reasonable yield of around 2.9 percent. We believe that the dividend payout could continue to be sustained from the streams of positive cash flow which ABR generated from its businesses and operations.
3. Engaging In Social Media Activities To Target The Younger Crowd
Last year ABR employed a number of initiatives to reach out to the more tech-savvy youths. As part of their marketing strategies, greater emphasis was being placed on online advertising to engage in social media activities, campaigns and contests in the digital media which have generated very encouraging results. In addition, popular social media platforms such as Facebook, YouTube and Google Network were also being used extensively to feature Swensen’s food launches and promotional offers.
In March 2017, Swensen’s launched its very own mobile application which enables customers to enter lucky draw as well as receive updates on its weekly exclusive offers. The application has received pretty good response with more than 150,000 downloads at the end of 2017.
Last but not least, Swensen’s also partnered with food delivery platforms to offer island-wide food delivery service in January 2017. The food delivery service brought Swensen’s menu offerings to online customers with the option of enjoying the food in the comfort and convenience of their own home. This service not only broadened the group’s customer base but also opened up an additional avenue for its sales growth.
4. Inexpensive Valuation
Unlike its peers in the F&B sector such as BreadTalk, Jumbo Group and Old Chang Kee which have been aggressively opening new outlets overseas or forming joint ventures to bring popular brands onto local shores, ABR lacked ambitious expansion plans in its pipeline. However, that would also mean that the group’s capital expenditure would be relatively low and do not have to bear the risks of poorly-executed plans.
Based on its current market price which translates to a price-to-book ratio of 1.8 times, ABR appears inexpensive in comparison to the industry average of 3.5 times. We believe that ABR is an investment-worthy candidate that could add stability to one’s portfolio, in view of the group’s healthy business coupled with a robust balance sheet and decent dividend payout.
