RE&S Holdings

JAPANESE restaurant group RE&S Holdings has filed a preliminary prospectus for a Catalist listing as it seeks to raise capital for new outlets. See link below for preliminary prospectus:

http://www.sgx.com/wps/wcm/connect/a38bc...d377355726

1) It boasts a portfolio of 20 brands in 77 restaurants/stores. Upon closer inspection, most of its stores are either Ichiban, or Kuriya Japanese Market (fresh food retailer). Most of the remaining brands being found in their 4 Shokutsu Ten Japanese-themed food court, with the rest having 1 (Kuishinbo) or 2 stores (Shimbashi Soba). There is no revenue breakdown by brand, but it is stated that 74.4% of it is from full-service restaurants. So most of the revenue likely belongs to Ichiban, where investors should pay more attention to.

2) The balance sheet has $16.1m of debt, $15.1m of which is secured against their central kitchen and office building in 32 Tai Seng Street. Instead of paying down its debt, a total of $19.9m was paid out as dividends to shareholders, $4m of which was just paid out earlier this month. As a result, equity is reduced from $31.5m in FY15 to $25.5m in 1Q18, while debt-to-equity increased from 26% to 64%. 

Pre-IPO dividend history
FY15: $1.96m
FY16: $1.96m
FY17: $12m
2 October 2017: $4m

3) RE&S received $1.7m-$1.8m in other income from FY15-17. During the same period, net profit to shareholders ranged from $2.9m to $5.9m. These other income consists of grants from WDA (wage credit scheme), SPRING (productivity-related and IE. If we remove this item from the net profit, you can see that the margin is pretty thin.

Net profit (and margins) to shareholders adjusted for other income
FY15: $4.1m (3.12% of $131m revenue)
FY16: $1.2m (0.88% of $135m revenue)
FY17: $3.8m (2.71% of $140m revenue)

The shares will likely be overpriced. But it will be interesting to see how many (vendor) shares will be sold.

The invariable comparison will be with Japan Foods.

FY15: $4m (6% of $ 63m revenue)
FY16: $5m (7.9% of $ 63m revenue)
FY17: $4m (6.1% of $ 65m revenue)

Source: http://financials.morningstar.com/ratios/r.html?t=5OI

Market cap of $78m. No sale of vendor shares. Net proceeds of $10.4m. Majority of the proceeds intended for expansions, none for debt reduction.

http://www.sgx.com/wps/wcm/connect/f9ac3...650d21b95b

Looks like a lot of F&B operators are looking to IPO towards a late rally.

Lower profit, lower dividends, and slightly lower debts.

And not much change in market value.

http://infopub.sgx.com/FileOpen/Results%...eID=522268

All F&B operators in Singapore face twin challenges of 1) rental costs, & 2) wage costs. Margins are thin. Based on my own regular patronage (and therefore scuttlebutt) I have had Soup Restaurant, Sakae, Tung Lok and RE&S on my watchlist for abt 6 years, but the story that the numbers tell is not compelling.

I do like RE&S restaurants and concepts as a consumer, but I think the business is challenging to run profitably.

I will say that most, not all, face thin margins.

Those that enjoy high margins operate a small number of stores, ensuring maintenance of food quality, has a permanent crew, ensuring camaraderie and job effectiveness, and has lots of customers, ensuring efficiency through maximization of capacity. Think Punggol Nasi Lemak.

With the exception of Jumbo, the lower margins operators are those that list on SGX. They open lots of stores in malls which attract high rent, employ come-and-go part-timers who needs to be constantly trained, and may not have a full house during meal time. There is a lot of inefficiency in the operations of listed F&Bs.

I believe that Macs is the only F&B operator in Singapore who is able to run multiples stores with a high margin. They are just so efficient in their operations and in having lots of customers all the time.

(21-08-2018, 06:00 PM)karlmarx Wrote: I will say that most, not all, face thin margins.

Those that enjoy high margins operate a small number of stores, ensuring maintenance of food quality, has a permanent crew, ensuring camaraderie and job effectiveness, and has lots of customers, ensuring efficiency through maximization of capacity. Think Punggol Nasi Lemak.

This type hard to scale. Would not make a good investment. But I don't mind eating their food!

I am also a fan of Tung Lok restaurants. I occasionally go to Lao Beijing, Lokkee and recently patronised Tong Le Private Dining @OUE Tower. Their food and service is really good. Unfortunately, their financials are bad. :-(

Another sign of undervalued & unloved SG market:
https://www.theedgesingapore.com/amp/new...-offer-res

It's funny that I was queuing at 0.22 for few days just a week or 2 ago (insert crying baby emoji here) 
Too cheapo to increase my price to 0.23 which would have earned me a fantastic rocket type IRR

Anyway, was interested in the Co due to its Gokoku & Mister Donut.
Am a very satisfied regular customer of Gokoku (switched over from Breadtalk and never intend to look back), less sweet + more nuts type of ehmm healthier breads.

From my experience in Tencent, NetEast & now RE&S, it appears Peter Lynch's way of simple investment tricks work fine for me hahah.
I think Alibaba might be the case as well (in longer future that is).

But back to this, this privatization again proves that outside of STI index companies, it's not difficult to fish fat yummy fishes in SG market.

Well, based on last 1H24 audited results check, the equity is ~40mil. The company is debt-free and after accounting for ~14mil of cash, the 127mil offer values it at an enterprise value of 113mil, or almost 2.8x BV.

To think that many local investors in Spore are screaming out for higher BV multiples...

The Spore restaurant business is regarded as notoriously competitive (customers are spolit for choice in this cosmopolitan city) and costly (tenancy and labor) - There are headwinds to both the top-line and bottom-line. Probably the only silver lining in recent years would be a tempted down COGS due to the strong SGD.

RE&S's ROE is ~10-15% but could be easily reduced to low-mid single digits if just 1 thing at the top or bottom line doesn't go their way. Is the company going to do better with its increasing focus on QSR?

Nonetheless, smart money (or a PE fund) has decided RE&S's replacement value is at least 2x more than what its equity is worth. Assume the current ROE is 10-15%, buying at 3x BV means the ROE is reduced to 3-5% for the buyers. So even if smart money decide to lever up 100%, it will just mean 6-10% ROE if there is no business fundamental improvements. I reckon the founder will be leaving with his pot of gold and smart money will find their own experts to bring the business to new heights.