Ginger Beef Choice
Google Finance
Filing
Aug25, 2017
Q1 2017
Current Price: $0.125, Cap: $1.7m
1.Basic Information
(1) History .
The company was founded by Stanley Leung and his brother James Leung at Calgary around 30 years ago. It IPOed at 2002 by merging with a shell company. Stanley and his brother opened a small Chinese pickup/delivery restaurant called Ginger Beef Express at the beginning, later they opened more locations by collecting royalty fees. Also, they operate a small Chinese deli product factory called Ginger Beef Choice. It produces raw and pre-cooked deli products and sells to grocery stores like T&T, Lob-laws, Costco etc.
The manufacturing is actually its major business which generates around 20%-25% gross profit. Except for the early 2001-2002 years, it has been profitable. Revenue in this sector peaked at $7.3m at 2005. However, starting 2006, one of its major customers decreased its shelf space which cost its revenue to go down. Still, it remains profitable until 2011, it made a major product recall due to Listeria contamination. Then at 2012, one of its meat suppliers got it in trouble as well. Its revenue dropped to $4.5m at 2013 and then slowly recovered to $5.4m at 2016. This segment didn't make money until 2016 it made around $200k in EBITDA.
On the restaurant side, it seems operates one location at the beginning, but at around 2011, it sold one location and receive royalty only. There are several small express stores which only contributes around $60k in annual royalty. At 2012, it opens its biggest Ginger Beef Bistro restaurant and since then it collects over $200k in royalty.
(2) Business related:
The manufacturing business seems pretty stable with around $1.5m/quarter revenue lately and around 20% gross margin. Its SG& A is stable around $1m. There is a concern about raising chicken price.
The franchise business seems very good which generate around $250k/year in net income.
(3) Management.
The Leung brothers are the key people in the company. They seem did quite well on the restaurant's franchise business but did quite poor manage the manufacturing business. Especially the recall events cost the company for several years to recover to the previous margin.
(4) Debt and Credit facility.
Previously it has over $1m in a mortgage. Now it is less than $100k and will be fully paid at 2018. Cash is around $550k at Q1 2017.
(5) Insider holding, options, Insider trading info, share buy back.
(6) Employee numbers
The manufacture may hire around 80 people.
(7) Industry comparison.
(8) Major events
2. Financial data.
3. Valuation
(1) At 2015 the manufacturing business had a small loss with FCF-WC being positive. At 2016, it generates a small profit. It still hasn't recovered to the previous volume. However, I do expect it will remain profitable.
(2) The franchise business generates over $250k/year free cash which is the major attraction of the business.
(3) Added the two segment together, it should be able to generate around $300k/year pre-tax income and $200k to $250k in net income. Which well supports an $3m market cap.
(4) Currently, there is $550k in cash and very little debt. The company can use the cash for some good or wait for 2 years for it to accumulate to over $1m. Then it might declair dividend as before.
4. Risk
(1) The manufacturing business might go bad again.
(2) This is very tiny stock and it might not be recognized for a very long time.
5. Conclusion
Overall I believe the business is OK now and currently price is quite cheap compare to the business and the cash it has.
6.Links
