Food-Related Stocks: Could They Serve Up Tasty Gains for Investors?
Singapore is famous for its mix of delicious cuisines.
A food lover would have a great time trying out the various flavours and tastes that this little island has to offer.
It’s a treat to walk along the shophouses in Holland Village or Clarke Quay to sample the eclectic tastes these food and beverage outlets have to offer.
However, the COVID-19 pandemic has drastically altered this idyllic foodie’s paradise.
Border closures and movement restrictions have all but dried up footfall from both locals and tourists.
Food-related companies are considered essential services, though, and should be allowed to continue operating unlike hard-hit sectors such as airlines and tourism.
Let’s take a look at a broad swath of food-related businesses to assess if any could serve up appetising returns for your investment portfolio.
Social distancing woes
First, let’s look at the listed restaurant and food stall operators to see how they have been coping.
RE&S Holdings (SGX: 1G1) is a multi-concept owner and operator of multi-branded restaurants in both Singapore and Malaysia.
Some of their popular brands include Japanese restaurant brands Ichiban Boshi, Ichiban Sushi and Kuriya Dining.
For the fiscal year ended 30 June 2020, the group reported a year on year decline of 21.5% in revenue to S$110.6 million.
A net loss of S$5.3 million was incurred, reversing from last year’s net profit of S$4 million.
The poor showing was due to circuit breaker measures that led to temporary closures of 32 outlets across all the group’s different restaurant concepts.
Even as Phase II kicked in, social distancing will limit the number of diners within the premises.
Old Chang Kee (SGX: 5ML) fared better though.
The curry-puff and fried food products seller saw revenue decline by just 1.9% year on year for its fiscal year ended 31 March 2020.
Profit after tax, however, declined by 80% year on year as food costs remained high and also due to higher staff and utility cost.
The full impact of the circuit breaker had yet to hit the group as the results did not include the June quarter.
It’s conceivable that Old Chang Kee will be badly impacted as footfall plummeted during this period. While food catering can help to offset some of the decline, it might not make up for the bulk of lost sales.
Fragrant bread and the aroma of coffee
It was a different story for food and beverage manufacturers, though.
For QAF Limited (SGX: Q01), a multi-industry food company with core businesses in bakery and primary production, it reported better performances across all its divisions for the first half of 2020.
Bakery division saw a 23% year on year jump in revenue, while earnings before income taxes, depreciation and amortisation (EBITDA) nearly doubled to S$48.5 million.
Increased demand for the group’s signature Gardenia bread during the pandemic resulted in higher sales.
Food Empire Holdings (SGX: F03), a food and beverage manufacturing company whose products include instant coffee, frozen convenience and snack foods, also performed admirably despite the tough conditions.
Revenue dipped just 4% year on year to US$132.9 million but net profit after tax inched up 1% year on year to US$13.2 million.
The decline in revenue was due to lockdowns during the second quarter, but the group expects business to pick up with the gradual easing of these lockdowns.
The world still needs food
Investors need to remember that even during a pandemic, there will be a demand for food.
This demand may even get stronger as people stock up for fear of catching the virus.
Perhaps the largest food player of all can give a good indication of how the pandemic is treating it.
This is no other than Wilmar International Limited (SGX: F34), a S$28 billion leading agribusiness group.
Revenue for the first half of 2020 rose 12% year on year, while core net profit soared nearly 50% year on year to US$635.9 million.
The main driver for better performance was more people eating at home and buying higher quality products.
Get Smart: Choose the best dishes
When you go for a buffet, you will naturally gravitate towards the best dishes.
If you start consuming the mediocre ones, you will not have the appetite for really great food.
The same goes for investing as our funds are limited.
The lesson here is to go for the best companies in the food industry.
These businesses can indeed provide tantalising returns for your investment portfolio.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
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