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.