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Saturday, 29 August 2009

Traded Tsit Wing for Food Junction on 28th August 2009

With this, I officially threw in the towel on Tsit Wing, making a meagre 8.5% (taking dividend into account) over 3 years. I could either continue to wait for their restructuring efforts to pay off (assuming they aren't taken private successfully) or look somewhere. I chose the latter given the lack of visibility on how long the wait could be amid deteriorating performance, beginning even before the financial crisis started.

Food Junction

As the world economies embark on the uneven road towards recovery, opportunities to invest in cyclical businesses trapped in cyclical doldrums get harder to come by. After SPC, Courage Marine and CH Offshore, I had to look elsewhere and turned my attention towards stable, recovering businesses that is still thinly traded to signify lack of interest... yet. Re-investment into Super Coffeemix marked the beginning to this change of approach and Food Junction is the second one.

Business performance

If profit after tax (excluding other income) for 4Q exceed $595,000, I will be quite confident they are on the road towards a more convincing performance in 2010 and beyond, riding on the wave of economic recovery in Singapore and the region.

Reasons to be optimistic

Mass market food provider

Despite its effort to upgrade its existing food courts into lifestyle food courts, it is nonetheless a mass market food provider. However, I don't really see anything wrong with such a business plan. Food courts are a natural successor to hawker centres in Singapore. Given the current inflation level and upgrading of coffee shops (means rental to increase), the price to pay for a 'simple' meal is almost the same everywhere.

Friendly neighbours

Food junction, along with other major operators, Kopitiam, Food Republic seems friendly to one another, I seldom see food courts from different operators locating in the same building or beside each another. If they do, the crowd in the area will justify it. Thus, during meal times, all major food courts are always packed with people.

Renovation mostly completed.

Most of the renovation works were already completed and without further disruptions to operations, revenue and profit for forward quarters should be better compared to preceding ones.


One of the few risk I see is its attempt to venture overseas. Food Court culture (born from hawker centre style of eating) is still quite a Singaporean thing. Replicating this concept to the region is not so smooth sailing, as seen from their failure in Hefei Food Court in 2007. Thus I view their acquition of Malone’s American Cafe & Restaurant chain in Shanghai, China as a risky one. Incidentally, they had to delay their Malone expansion plan in Suzhou until market condition improve.


Signs are pointing that many businesses are picking up from their doldrums in the last few quarters. However, judging from the volume and jumps in prices in many counters in general, the market consensus seems to be pointing to a remarkable economic recovery. Refusing to subscribe such irrational optimism, I'm still looking out for neglected businesses trying to stand up from recent injuries.

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Blogger Changel said...

This comment has been removed by the author.

31 August 2009 at 16:07  
Anonymous Anonymous said...

Market uncle, would you like to take a look at Auric, the FJH's holding company? It appears to me badly undervalued too.

31 August 2009 at 16:09  
Blogger simon said...


may i know the business model of food junction? does food junction rent an area in a shopping centre and then re-lease it out to the hawkers while also getting a cut from the revenue? or do they hire hawkers on a fixed monthly salary to manage the food stores while food junction gets all the revenue and profit from the food sold and of course bear all the food expenses etc. as well?

31 August 2009 at 22:40  
Blogger Market Uncle said...

Hi Anonymous,
I merely glanced through Auric's portfolio and quite pleasantly surprised to find household brands like Sunshine bread and Delifrance. However, digging further, saw it posted a huge net loss in 2008, dragged down by significant jump in selling & marketing expense + general and admin expense, some due to impairment, some due to write-downs. Nonetheless, Auric is not very appealing to me, at least for now.

31 August 2009 at 22:48  
Blogger Market Uncle said...

Hi Simon,
You can find most of the information in its Annual Reports. Basically, they lease the place for food courts from the landlords and licence the use to individual stallholders. However, they do run 59 out of the 271 stalls they had althogether.

31 August 2009 at 22:53  
Anonymous Anonymous said...

For the huge loss of Auric in FY2008, loss in disposal of investment and fair value loss is about 17m, while the newly-acquired Delifance took up 7m loss. Its non-food operation in China (which has been recently disposed) also added few million into the loss. The surge in selling & marketing expense + general and admin expense also appears due to equity accounting for its newly-acquired business (Delifance and FJH). Therefore, the possible improvement of Auric will largely depend on its ability to improve the operation of its newly-acquired Delifance and FJH, and of course the general recovery of the economy (which is very important for investment holding company like Auric who has sizable equity investment).

I typically have problem in analyzing investment holding companies (like Auric, Transpac, Chuan Hup) and therefore would like to seek your opinions.

1 September 2009 at 22:24  
Blogger Market Uncle said...

Hi Anonymous,
Unless I the holding company is able to buy the subsidiaries at a much lower price than retail investors can AND the share price of the holding company is trading BELOW the aggregate value of its portfolio, then I would consider. Else, would it be better to buy subsidiaries directly?

1 September 2009 at 23:03  
Anonymous Monty said...

I chanced upon to view your blog and found it very interesting. Great ... Keep it up!

2 September 2009 at 14:20  
Anonymous Anonymous said...

Hi Market uncle,
you have a good point here, but it is hard to determine the aggregate value of its portfolio since most of its portfolio are private operations. Judging from Auric's NTA per share of S$0.88 (after deducting huge goodwill and intangible in its book), it appears attractive to me. The NTA per share of FJH is S$0.17.

2 September 2009 at 17:10  
Blogger Market Uncle said...

Hi Monty,
Thanks for visiting :)

2 September 2009 at 22:24  
Blogger Market Uncle said...

Hi Anonymous,
Auric is trading BELOW NTA while FJ is trading ABOVE NTA. On this account, Auric seems cheaper than FJ.

Depending on your required rate of return, R, a company with Return on Equity exceeding your R is creating value for you. The converse means destroying value, as in the case of Auric.

However, buying companies with deep discount to NTA (cigar butts) can be worthwhile too as the basic assumption is that since its so bad, the stock price so punished, there not much room for movement other than improvement. I did benefit from such investment in Armarda years ago. But the problem is how long will things take to change for the better, if ever.

2 September 2009 at 22:33  
Anonymous Alex said...

I share the same views. Liked your blog very much.

22 July 2011 at 19:12  

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