QAF

QAF: will bring its Gardenia bread brand to China. QAF’s Gardenia unit will invest in a 55 / 45 JV in Fujian with Jadeluck Investments. Jadeluck is a firm registered in the British Virgin Islands and is wholly owned by Lin Kejian, a director and substantial shareholder of QAF. The total investment cost to set up a manufacturing facility and the initial working capital for Gardenia Fujian is ~$16m. QAF will contribute $4.4m by way of share subscription, and lend an extra $4.4m to the JV. Jadeluck will subscribe for $3.6m worth of shares and provide an additional loan of $3.6m. QAF said that the absence of a large automated mass producer of packaged loaf bread in the Fujian bakery market, unlike in other China cities, is advantageous to Gardenia Fujian. The new unit will operate on a ready-built factory site in Fuqing and will benefit from a rent-free lease agreement for a period of 20 years granted by a corporation owned by Mr Lin and his associates. QAF trades at 9.4x P/E. CIMB had an unrated report in early Jun, likes the co’s undisputed leadership in the mass branded bread, and the stock for its strong defensive characteristics. Says QAF (at $0.68/sh then) is trading at 3.4x EV/EBITDA, an unjustified discount vs regional peers’ 10.4x avg.