Auric Pacific

Kim Eng on 24 May 2012

Background: Auric Pacific has five business divisions. Marketing & distribution (of packaged consumer F&B products including fine wines, beers and meat) accounts for 60% of revenue. Auric also manufactures baked goods under in-house brands Sunshine (bread) and Buttercup (margarine), which contribute 10% of sales, while 35% of sales come from food retail and food court, eg wholly-owned subsidiary Delifrance and food court operations via 61%-owned Food Junction (acquired in 2007). The rest is mainly investment income from quoted securities (eg DBS RCPS).

Why are we highlighting this stock? The company recently appointed Miss Saw Phaik Hwa as the CEO, effective from 1 May 2012. As the ex-CEO of SMRT, she presided over the numerous mishaps that have befallen the public transit company, a series of highlypublic breakdowns that caused much inconvenience to commuters and eventually resulted in her departure.

What did Auric see in Miss Saw? Despite the unfortunate circumstances surrounding her departure, which were rather lamentable, it is undeniable that she has deep experience in running retail and marketing businesses. Before she joined SMRT in 2002, she had held various senior positions in dutyfree retail chain operator DFS for 19 years. Also, while she was at SMRT, she was credited for increasing SMRT’s rental and advertising income from almost zero to nearly half of group EBIT by end-2011.

Good fit for Auric, on paper. Auric’s main business is in the distribution of fast-moving consumable goods, such as fine wines. Through its key subsidiaries Sunshine Bakery, Delifrance and Food Junction, it is also involved in the manufacturing of baked food products and the operation of food retail outlets. Based on her experience in DFS and SMRT, Miss Saw is a good fit for Auric, at least on paper.

What she could do for Auric. Auric’s topline has been stagnant in the last three years except for manufacturing and food court operations. It would appear that the wholesale & distribution and food retail businesses need a “wake-me-up”. While profits have grown in 2010 and 2011, most of the growth has come from investment and other income. In addition, we think overheads are on the high side, especially selling & marketing costs (17% of sales).

Jury is still out. Valuations are not demanding for a food company at 9x historical PER and 0.6x NTA (Dairy Farm, for instance, trades at 29x PER). It is also supported by a 4.8% dividend yield and is net cash (almost 50% of market cap). But it remains to be seen if Miss Saw can turn things around. For now, investors have voted with their feet. Since Auric announced her appointment on 9 April, the stock has dropped 14% versus the index’s decline of 6%.