No Signboard Holdings

Preliminary Offer Document for No Signboard Holdings

http://www.sgx.com/wps/wcm/connect/4ea8b...2df0a05383

1) No Signboard Holdings's (NSB) business (3 outlets in Singapore) enjoys very high net margins of between 26%-36% over the past 3 years. Balance sheet is un-leveraged, and trade payable days is high at between 80+ days to 150+ days; in other words, the raw materials suppliers are financing its business. NSB's core business is good.

2) The company tried to go overseas through a franchisee in Jakarta in 2008. And then establishing their own restaurant in Macau later that year. And then another in Hong Kong in 2011. All overseas operations have since ceased. It seems that management is not as savvy in operating outside of home grounds. And as such, investors should not expect NSB to have a similar growth trajectory in profits compared to Jumbo. At least not from the expansion of its core business.

3a) The company intends to use the IPO proceeds to build its 1) beer manufacturing and distribution business. Currently, it subcontracts the manufacturing of its beer. Revenue of just under $1m was recorded for 9M17, and none for previous years. One of its distributors has recently terminated its distribution agreement, paying $1.1m as compensation. Are NSB's beer really that difficult to sell? One thing for sure, the beer market in Singapore is highly competitive. And whether NSB's beers can really sell, remains to be seen. Investors should not expect this segment to be (highly) profitable for the coming years.

3b) The company also intends to use the IPO proceeds to develop a ready-meals (microwaved food) business. Since there NSB does not have a central kitchen, their plan is to subcontract the manufacturing of these ready-meals to a third party, which has not been named. These ready-meals will be distributed through 'Ma2 Shops (vending machines),' which is 51% owned by NSB's largest shareholder GuGong. Personally, I think frozen and reheated food does not taste good. And for the same price, you can get a better-tasting meal from a coffeeshop or hawker. Such a business model is attractive to business owners because there is no labour to operate the premises, and rent is lowered. There are lots of places to eat in Singapore -- for all hours except midnight -- so what kind of consumers are they targeting, and is it sufficient? Figures from this segment are not found in the prospectus. Like the beer business, I think investors should not expect this segment to be (highly) profitable.

http://www.sgsme.sg/news/no-signboard-se...r-tampines

4) The listed entity operates 3 outlets, in Esplanade, Vivo City, and Clarke Quay. What about its first restaurant outlet at Geylang which was establised in 1995? It is franchised to Yak Nak Keow and Cheo Chia Kew; relatives of the two Lim Executive Directors. NSB receives $12k per month as franchise fees, but also pays $12k per month for the rental of space from the outlet to store live seafood. This outlet must be highly profitable, but is not part of the listed entity. Why does this arrangement exist? Probably different family members having different business opinions, and each wanting to run their own operations (and keep their own profits). 

There are good assets in this entity, but also some unproven ones. And as always, whether this will be a good investment depends largely on how much the shares are priced.

Nice summary

IMHO No signboard also seems No Clue. They are also looking to expand to heartlands which I'm not sure they can maintain quality. Their franchise model for Geylang seems strange and looking to franchise in China. They just bought Draft Denmark in June, just Before 9M17 and already looking to invest into own brewery

Agree their trajectory is not comparable to Jumbo

(11-11-2017, 09:29 PM)karlmarx Wrote: 3a) The company intends to use the IPO proceeds to build its 1) beer manufacturing and distribution business. Currently, it subcontracts the manufacturing of its beer. Revenue of just under $1m was recorded for 9M17, and none for previous years. One of its distributors has recently terminated its distribution agreement, paying $1.1m as compensation. Are NSB's beer really that difficult to sell? One thing for sure, the beer market in Singapore is highly competitive. And whether NSB's beers can really sell, remains to be seen. Investors should not expect this segment to be (highly) profitable for the coming years.

Thanks for the insights. For any serious investor, its good to go through the whole prospectus in details. 

I am a beer drinker. And i have tried draft denmark. Its available in the neighbourhood coffeeshops. The conclusion is that its probably my first time and last time buying it. That should tell you something about the quality with respect to the retail price. 

Anyway the above is my own opinion. There are so many beer brands out there and competition is keen.

I'm no beer drinker. But if I were to partake in social drinking, I wouldn't choose an unknown brand. NSB has to spend a lot to market its beer.

Also, their plan to establish a 'chain of Chinese restaurants' under a 'new dining concept' in the heartlands has yet to be executed, and hence is again another unproven source of growth. But this idea has the highest chance of generating returns. If the concept is similar to Paradise but with fewer and inexpensive menu items, at lower prices, there may be a market for it.

No Signboard is not a "Jumbo" if one dig into the unit economics. Don't be deceived by the high margins and the big name cornerstone investors backing. Think deeper about the financials provided in the preliminary prospectus.. It would be best to go and eat at both restaurants and one will find out that Jumbo is much more better managed in terms of brand building. I think the unlisted Mellben seafood is also better managed for that matter.

Sent from my SM-G930F using Tapatalk

No Signboard IPO 23.6 times subscribed; debuts on Catalist on Nov 30

MARISSA LEE
WED, NOV 29, 2017 - 8:27 PM

SHARES of seafood restaurant chain No Signboard Holdings were 23.6 times subscribed in its initial public offering (IPO) that closed on Tuesday (Nov 28), the firm said on Wednesday.

The family-owned business, famed for its white pepper crab, will start trading on the Catalist board of the Singapore Exchange at 9am on Thursday (Nov 30), after pricing its shares at S$0.28 apiece, the top end of its indicative range.

Excluding shares that were offered to cornerstone investors, the IPO size was 65.7 million shares. The public was offered 2.5 million shares and the rest were placement shares.

The public offer was 268.6 times subscribed, with 7,620 valid applications made while application monies received was around S$188 million.

More details in http://www.businesstimes.com.sg/companie...-on-nov-30

According to the balloting results notice -

Quote:Based on the 2,500,000 Offer Shares available to the public for subscription and/or purchase, the Public Offer was approximately 268.6 times subscribed. Excluding subscriptions for and/or purchases of 300,000 Placement Shares by Directors and their associates as further detailed below, based on the Invitation size of 65,734,500 Invitation Shares and the total remaining valid applications received amounting to 734,226,400 Invitation Shares (comprising valid applications received for 671,416,900 Offer Shares and 62,809,500 Placement Shares), the Invitation was approximately 11.2 times subscribed.

Why 11.2 times subscribed here but all the newspapers said 23.6 times?

11.2 times is based on the total demand of 671,416,900 Offer Shares and 62,809,500 Placement Shares which were validly subscribed 
while
23.6 times is based on total demand for 671,416,900 Offer Shares and an indication of interest received for 882,168,900 Placement Shares 

Public Offer shares = 2,500,000 shares
Placement shares = 63,234,500 shares
Invitation shares = 63,234,500 + 2,500,000 = 65,734,500 shares

There were 7,620 valid applications for the 2,500,000 Offer Shares available to the public for subscription, these applicants applied for an aggregate of 671,416,900 Offer Shares.

Valid applications received for Placement shares = 62,809,500 shares
300,000 Placement Shares are allotted to directors
125,000 Placement Shares that were not validly subscribed for and/or purchased have been made available to satisfy excess applications for the Offer Shares
62,809,500 = 63,234,500 - 300,000 - 125,000

Indication of interest received for Placement Shares =  882,168,900 shares.

671,416,900 + 62,809,500 = 734,226,400
734,226,400 / 65,734,500 = 11.2 times

671,416,900 + 882,168,900 = 1,553,585,800
1,553,585,800 / 65,734,500 = 23.6 times


More details in :
1. http://infopub.sgx.com/FileOpen/No%20Sig...eID=480350
2. http://infopub.sgx.com/FileOpen/No%20Sig...eID=480351

Thanks for the detailed explanation! Really appreciate your effort  
I'm just puzzled by the huge difference of the 2 numbers in highlighted in green below. 

(02-12-2017, 11:27 PM)cyclone Wrote: Indication of interest received for Placement Shares =  882,168,900 shares.

671,416,900 + 62,809,500 = 734,226,400
734,226,400 / 65,734,500 = 11.2 times

671,416,900 + 882,168,900 = 1,553,585,800
1,553,585,800 / 65,734,500 = 23.6 times

Again, according to the balloting result notice http://infopub.sgx.com/FileOpen/No%20Sig...eID=480350

Quote:Based on the 2,500,000 Offer Shares available to the public for subscription and/or purchase, the Public Offer was approximately 268.6 times subscribed. Excluding subscriptions for and/or purchases of 300,000 Placement Shares by Directors and their associates as further detailed below, based on the Invitation size of 65,734,500 Invitation Shares and the total remaining valid applications received amounting to 734,226,400 Invitation Shares (comprising valid applications received for 671,416,900 Offer Shares and 62,809,500 Placement Shares), the Invitation was approximately 11.2 times subscribed.

So apparently out of the total indication of interest for Placement Shares (882,168,900 shares) received, only less than 8% are valid !!

By including the invalid applications for calculation and declared 23.6x subscribed then used this as headline, isn't it trying to mislead people?  

Just a few months back, NSB IPO-ed at 28 cents, selling about 59 million shares to institutional investors and 65 million shares to the public.

Recently, the market is selling NSB at about 15 cents. If institutional investors such as Lion Global, JP Morgan, and Goi Kok Ming (son of GSH) bought at 28 cents, NSB must be a steal now at 15 cents! Big discount!

Or is it?

In my initial assessment on 11 November 2017, I carelessly overlooked several glaring yet material details. I would have come to a very different conclusion. It only became apparent when the recent quarterlies were released. So let's start there.


1) The latest quarter results look really bad. How could it be, when it looked so good on the IPO prospectus? Must be the IPO expenses! Not really. Y-o-Y change, which excludes the IPO expenses, showed a drastic increase in some of the expense items. Refer to 2Q results here:

http://infopub.sgx.com/FileOpen/Q2-31Mar...eID=505983

What about 1Q results? It reported a 56.3% increase in Y-o-Y net profit, even though it had a $1.1m IPO expense! Not really. It included net profit of $2.5m from 4Q17. Stripping away this profit, NSB would be about $0.9m in the red for the previous quarter. Refer to 1Q results here:

http://infopub.sgx.com/FileOpen/Q1-31Dec...eID=489213

It does not make sense for the business conditions of F&B operators to change so sudden. There was no news of massive crab shortage or anything like it. From the 1Q and 2Q results, the cause of the fall in profit can be traced to 3 expense items; cost of goods sold, employee expenses, and other expenses.

How did these items fare before IPO? Let's take a look.

Expense items presented as a percentage of revenue:

-------------------------------------------before IPO--------- ------after IPO----
                                    FY14          FY15          FY16          FY17          HY18
Cost of goods sold:          27.0          22.2           21.1          24.2           30.5        
Employee expenses:        20.9          19.4           20.7          22.6           33.3
Other expenses:              8.8            5.5            5.2             7.8            13.8

Perhaps it was coincidental that costs were going down in years leading up to IPO, from FY14 to FY16, as presented in the IPO prospectus. And then going up immediately after, from FY17 onwards. I don't have a rational explanation. Could they have possibly reduced their reported expenses by paying for some of it through other ‘related but unrelated’ entities? I don't know. But that would be silly because such acts can land the involved in big trouble. In any case, I’m guessing that the expense figures in the near future will look more like the post, rather than pre, IPO figures.


2) If you're thinking that since management has 73% ownership in NSB, they will surely do plenty to turn things around, here's some more figures to ponder over:

During the restructuring exercise prior to IPO, all $16.8m of the retained earnings were paid out of NSB as dividends, leaving it with a $2 share capital. It was then recapitalised with $5.1m, which after taking into account the liabilities, puts equity at $3.9m.

Before the restructuring exercise, from FY14 to FY16, dividends totaling $20.1m were paid out.

During the IPO, 50m vendor shares were sold, giving NSB owners $14m.

Total cash received by NSB owners over the past 3 years: $16.8m - $5.1m + $20.1m + $14m = $45.8m

They could still be highly motivated, even with all that cash. I don't know.


3) Market says NSB is now worth $71m, down from $130m at IPO. For $71m you get a struggling beer business, an unproven food vending business, an as of yet unknown casual dining business, and a restaurant business with changing expense figures that has no good explanation. It also has about $20m of cash. But this cash is earmarked to develop these struggling, unproven, and unknown new businesses. I don't know what kind of cash flows they will produce, so I wouldn't be expecting much of it.

Another way of looking at this is that NSB owners has set themselves up with $45.8m of retirement money, while they use funds from IPO investors to fund their new (and more risky) business ideas. Although IPO investors collectively hold only 27% of the shares, $21m out of $26m (or about 80%) of NSB's share capital was funded by them. Similar moves were also done by other recent IPOs. HRnetGroup, which also took out large 'retirement money' before IPO, also used IPO funds to acquire foreign businesses.


4) The prospectus shows the audited equity of NSB as of 30 June 2017 is $15.3m, which is reproduced numerous times throughout the document. But in reality, the equity is $3.9m, which is its unaudited proforma (reproduced fewer times throughout the document), due to the restructuring as described above in point 2. It can easily mislead and confuse if one is not careful, just like its declaration of 23.6x subscription for its shares. Who could be advising NSB?

The sponsor is RHT Capital.

Which, as I recall, has also been highlighted in:

https://www.valuebuddies.com/thread-395-...#pid147565

https://www.valuebuddies.com/thread-1452...#pid146805


What do you think NSB is worth? And how much will you pay for it?