An Investor’s Guide To Understanding QAF Limited’s Bakery Business

QAF Limited (SGX: Q01) is a food production company. It may be a company that has captured the attention of investors given its strong stock market performance over the past five years – its share price has climbed 131% in that period.

QAF has three main business segments, namely, Bakery, Primary Production, and Trading & Logistics. I thought it would be useful to have a closer look at the Bakery segment, which is the company’s main operating business (more on this shortly).

Contribution to QAF

Although QAF is also involved in the production and processing of meat, it can actually be thought of as being a bakery company.

The Bakery segment accounted for 52% of QAF’s revenue and 75% of operating profit in 2015. So clearly, the Bakery segment is the dominant business of QAF. The segment’s activities include the manufacture and distribution of bread, confectionary, and bakery products under a number of different brand names. Some of you reading this may be familiar with the bread brands Gardenia and Bon Jour; both are in QAF’s portfolio.

Operating regions

QAF’s Bakery segment operates mainly in five countries, namely, Singapore, Malaysia, the Philippines, Australia, and China. The company owns 100% of most of its Bakery segment businesses, except for its operations in Malaysia and China, whereby it has 50% and 55% ownership, respectively.

Market position

QAF is a dominant player in the packaged bread markets in Singapore, Malaysia, and the Philippines. In those markets, Gardenia was the best-selling packaged bread brand in 2015.

Its dominance can be seen in its market shares in Malaysia and Metro Manila, which are around 65% and 60%, respectively.

Growth opportunities from new products and a new geographical market

QAF has been engaging in product innovation in its Bakery segment. For example, in 2015, the company introduced the Gardenia Spelt, Quinoa & Purple Wheat Country Loaf, a bread made from a “superior blend of heritage grains and… sourdough, olive oil, flaxseeds and sunflower seeds.” In the same year in Malaysia, the company had introduced new chocolate spreads that were well received by the market.

As for the new geographical market, QAF had established a subsidiary in Fujian, China, in 2012. The subsidiary has a factory there that started operations only in 2014. QAF’s 2015 annual report stated that its Fujian business has 22 varieties of breads, cakes, and baked products that are distributed in nine major Fujian cities and 244 supermarkets.

A Foolish conclusion

What you’ve seen here is a quick overview of QAF’s Bakery segment.

Given the importance of the segment to QAF’s overall financials, it could be useful for investors who are interested in the company to have an understanding of the segment’s activities and prospects.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.