One can't talk about F&B without comparing with the local best, Japan Food Holdings. I am not gona talk extensively on these two. Just look at the numbers. (Note: I edited the gross margin for 2018 & 2019 of Tang Palace as it is stated incorrectly). We can see Japan Food are quite on par with Tang Palace, however they just cannot grow (and taste awful).
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| Revenues |
Growth Factor
Tang Palace is growing at a CAGR of 10.5%, from the table above, we can see that revenue is growing every year while 1H 2019 has a slow growth as there is no new stores. In the interim report, it was mentioned some stores will be opened in 2H 2019 with one in Singapore. And yes, I have to make a visit myself which I will talk about in the next post.
Each year will see a 2 to 4 stores growth. The main source of revenue will be from their core business Tang Palace, and causal dining Social Place is growing pretty well. They will probably close down Tang Cuisine. The joint ventures are kinda in significant for now, honestly I would prefer they concentrate on their own brands.
Cash Flow Machine
Tang Palace has been paying out over 100% of its earnings since 2016. How is that possible? I have to look at the cash flow. Payout so far is lesser than the Adjusted FCF or the FCF. The cash in balance sheet is also increasing year after year from the cash flow less 2018. Tang Palace also has low debts/borrowings. Hence the 100% payout dividend is sustainability with cash left over for business operation and expansion
Free Cash Flow (FCF) = Operating Cashflow - CAPEX
Adjusted FCF = Net Profit + Non-Cash items + Borrowings - CAPEX
Business Risk & Moat & Management
F&B is a tough sector to be in, few has a moat. The moat is how a customer keep returning to eat. Everyone has a few regardless good or cheap, that chicken rice, laksa for example, or sushi tei, saizerya, ichiban (RE&S Holdings) for mid tier food.
The rising cost and wages doesn't help too, eating into margins like RE&S Holdings although it serve great food, it just not as profitable as Japan food. This show a good management team is important especially for F&B. Management also does't hesitate to kill off stores under their management yet revenues still grew.
Conclusion
The CAPEX for the past 4 years has been less than 50% of net profit. Add in the non cash item and you get the FCF to sustain this juicy dividend. If I am to invest in Japan Food, I think Tang Palace would be a better choice. Both of that has very low liquidity with comparable metrics. I will be writing about Social Place, Tang Palace's first store in Singapore. Read it here once it is up.
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| Import from Singapore yo~~ |
