Saturday, 29 June 2019

A midnight write-up on ST Group Food Industries Holdings Limited


This will be a midnight write-up on ST Group Food Industries Holdings. I apologize for any mistakes in the following post. Its one of my first time or few times writing an IPO as well. 

Issue Price: $0.26 per share
Issue method: Only private placement
Total Issued Shares after placement: 246 million shares
Net Profit for 1H2019: 1.912 million (In Aussie dollars)
Implied PE should results stay the same would be 17.3  (without counting in IPO Cost)
No dividend policy is stated.

What I like from the company

1) Shareholding after the IPO

Nobody seems to be cashing out from pre to post ipo, which is a good indicator. The 2 cornerstone investors are the master franchiser of Nene Chicken as well as the IPPUDO brand.

2) Tri-core business segments. IDarts not being a core is not included.

The company has 3 segments, food and beverage retail, supply chain and franchise.



F&B Retail
Supply Chain
Franchise
2016 Segment Margin
-0.6%
13.99%
17.6%
2017 Segment Margin
4.84%
12.26%
24.63%
2018 Segment Margin
4.46%
13.39%

26.81%


With the increase in stores and increase in margins over the years, it is expected that the company should do well in both F&B segment and Franchise revenue.
As the company obtains royalty based on a % of the gross sale of its sub-franchised and sub-licensed outlets, the company is able to participate in the growth of these brands as well (at the same time putting themselves at a slight risk of the brands not doing well)
At the same time by being able to provide the food via its central kitchen, the company is able to ensure its food quality via its supply chain segment and yet at the same time earn a profit. This is pretty good integration to me.

What I dislike from the company

1) Papparich
-One would wonder why is Papparich not a cornerstone investor and instead we have Nene chicken and IPPUDO master franchisers as one when IPPUDO only has 2 outlets so far.
-On a closer look, the company only owns 50% of Papparich. As such it would record roughly half of its profits Papparich makes under Non Controlling Interest(NCI).

I think it's good that over the years, the profit to the shareholders have increased and the company has been moving away from reliance on Papparich as the sole brand . 
However, it also shows that Papparich's profits have stagnated from 2016 to 2018. Although in HY2019, NCI came in at A$856 000, it remains to be seen what's the strategy with Papparich from here on.
I won't say this is a terrible point to dislike about the company its probably picking bones out of an egg to be honest.

2) The need to raise fund is not justified
The company will be receiving net proceeds of S$6.2 million after the placement. The company earned A$2.7mil (not including NCI share).
Judging from its fabulous results in HY 2019 whereby it earned A$2.768 million in half a year whereas in the whole of 2018 it earned A$3.763 million, it's fair to say the profits this year and last year should be very close to the net proceeds. Hence it makes no sense for me why they would consider such a placement.
Though under trade payables, the company has roughly A$3.1 million amount due to shareholders and related parties. It remains to be seen how long this will remain on the balance sheet.

Conclusion
I feel that this is a pretty decent company which has very good integrated business model featuring franchise, retail outlets as well as supply chain. Though I would still be puzzled by why would they want to conduct such a private placement and be listed on the sgx.

Ratings:
Financial results: 5/5
Balance sheet: 4/5
Self-feel: 0/5
Total: 9/15

Like any other companies doing a listing on the market, this company will still likely record a lower profit as it has to account for listing expenses. Being the first restaurant company to list but not have any operations in Singapore, it will be unfair to use listed Singapore peers to compare to this company.

If I am honest, this company looks damn good, just too good to be true for me to buy into it.



As usual attaching a k-pop photo at the end of the post.








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