Auric Pacific Group Limited - CIMB Research 2017-02-21: The sun continues to shine

AURIC PACIFIC GROUP LIMITED A23.SI

Auric Pacific Group Limited - The sun continues to shine

FY16 core net profit was in line, at 101% of our forecast. It surged 177% yoy to S$19.3m, driven by improved profitability of all business segments.
Net cash position strengthened to S$87.5m, forming 42% of market cap.
We remain upbeat on the group’s FY17 earnings outlook. Major shareholder’s offer price of S$1.65 translates into 10.9x FY16 core P/E (or 6.3x excluding net cash).

Auric’s FY16 core net profit was in line with our expectations, at 101% of our forecast. It surged 177% yoy to S$19.3m in FY16 (FY15: S$6.9m), driven by improving profitability in all business segments.
Reported net loss of S$0.3m in 4Q16 was mainly due to non-cash non-recurring impairment losses for PPE and intangible assets. Excluding the one-offs, core net profit was S$3.9m in 4Q16 (4Q15: S$3.3m).
Group revenue saw a slight dip of 2.1% yoy in FY16, mainly due to the closure of several loss-making cafes under the Delifrance brand and certain non-performing restaurant outlets under Food Junction Group.
Revenue of the group’s core businesses, including
1. wholesale & distribution and
2. food manufacturing (Sunshine bread and SCS butter)
continued to grow in FY16, rising 1.3% and 11.7% yoy respectively.
Free cash flow improved substantially to S$42.7m in FY16 (FY15: S$6.2m) due to:
1. overall improvement in group profitability, and
2. lower capex burden due to the scaling down of the non-performing food retail business (Delifrance cafes and Food Junction Group’s restaurant operations).
As a result, Auric’s net cash position ballooned to S$87.5m at end-FY16 (end-FY15: S$44.7m), forming 42% of the group’s current market cap.

Given that most of the rationalisation of its non-performing food retail business is completed today and most of the necessary impairments have been provided for, we believe that Auric is poised for a refreshed start in FY17F and we are optimistic about its FY17-18F earnings outlook. There are no changes to our FY17-18F EPS.
We also noticed that Auric’s Sunshine brand of packaged bread has been gaining shelf space in local supermarkets and grocery stores over the past year against its key competitor Gardenia. In addition, Auric has launched an increasing variety of buns under Sunshine and intensified advertising efforts.

Since the offer was announced on 7 Feb, the offeror has acquired c.4.4m shares via market transactions, representing 3.5% of Auric’s total issued share cap.
We note that c.3.6m (2.86%) of the transacted shares were acquired in the first two days after the announcement and the remaining 0.8m (0.64%) shares were acquired in the subsequent eight trading days.
The offeror needs to collect another 12.3m shares (9.78%) by the close of the offer (24 Mar 2017) to successfully delist Auric. Investors should stay vigilant on the acceptance level.

The offeror’s offer price of S$1.65 translates into FY16 core P/E of 10.9x (or 6.3x excluding net cash).
Our Add call and target price of S$1.96 (based on a 25% liquidity discount to our FY17 SOP estimate of S$2.61 per share) are only valid if Auric remains listed.

Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-21

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