If EPS Growth Is Important To You, QAF (SGX:Q01) Presents An Opportunity

QAF Limited (SGX:Q01), a leading manufacturer and distributor of bread, bakery, and confectionery products, has been growing its earnings at an average annual rate of 3.6%. While this growth rate may seem modest compared to the industry average of 17.3%, it is essential to consider the company's unique competitive advantages and the challenges it faces in the near future.



One of QAF's key competitive advantages is its strong dividend payouts. The company has consistently paid dividends to its shareholders, with a dividend yield of 5.8% in 2023. This indicates that QAF is generating sufficient earnings to distribute to shareholders and maintain its dividend payouts. Additionally, QAF's earnings growth has been increasing over time, with a significant improvement in 2023 compared to the average annual growth rate of 3.6%. This suggests that the company may be improving its operational efficiency and implementing successful cost-cutting measures to drive earnings growth.



Another factor contributing to QAF's EPS growth is its product portfolio expansion. The company has expanded into new markets and introduced new bakery and confectionery products, driving revenue growth and market share. For instance, in 2023, QAF's revenue grew by 8.84% to 628.59 million, compared to the previous year's 577.52 million. This growth can be attributed to the company's expansion efforts and its ability to leverage synergies through strategic acquisitions and partnerships.



Strategic acquisitions and partnerships have also played a significant role in enhancing QAF's EPS growth. For example, in 2021, Industry Park Pty Ltd entered into a sale and purchase agreement to acquire Rivalea Holdings Pty Ltd and Oxdale Dairy Enterprise Pty Ltd. from Hamsdale International Pte. Ltd. and QAF Limited (SGX:Q01) for approximately AUD 150 million. This acquisition allowed QAF to expand its product offerings and enter new markets, contributing to its EPS growth.



Despite QAF's relatively low revenue growth rate of 1.4% per year, the company has maintained a consistent return on equity (ROE) of 7.4% and net margins of 5.5%. This suggests that while the company's earnings growth may not be as robust as the industry average, it has been able to maintain profitability and generate returns for its shareholders.



In conclusion, QAF Limited (SGX:Q01) presents an opportunity for investors seeking steady EPS growth and a strong dividend payout. While the company's earnings growth rate may not be as high as the industry average, its unique competitive advantages, such as its strong dividend payouts, product portfolio expansion, and strategic acquisitions, make it an attractive investment option. However, investors should be aware of the potential risks and challenges that QAF faces in the near future, such as the uncertainty surrounding the Zantac litigation and the plans of GSK and Pfizer to sell their stakes in the company. By carefully considering these factors, investors can make an informed decision about whether QAF is the right investment for their portfolio.