Neo Group

[CityFarmer]

The company story continue, and so far so good.
(not vested)

----
DOUBLE BLESSINGS IN THE YEAR OF THE GOAT FOR NEO GROUP –
RECORD-BREAKING ORDERS FOR LUNAR NEW YEAR AND RANKED AS NUMBER ONE
EVENTS CATERER IN SINGAPORE1
- 1,189 events catered on the first day of Lunar New Year
- Delighted 133,157 guests over the eve and 15-day Lunar New Year period, topping
last year’s record
- No. 1 Events Caterer with 10% market share in a S$362.6 million events catering
market
...
http://infopub.sgx.com/FileOpen/NGL%20-%...eID=338127

[btws548]

Neo Group, while in a highly competitive F&B industry, is on the right path.

Firstly, it's primarily in the food catering business. Based on their last annual report ending Jan 2014, at least 65% of their revenue is from food catering. That's unlike Select Group, which has less than 30% of their revenue from food catering, also derived from their last annual report ending Dec 2013. Most of Select Group's revenue comes from their restaurant and food retail business.

From the Services Survey Series on F&B services conducted by the Department of Singapore for the year 2013, under key performance ratios, food caterers consistently ranked the highest among the various categories of F&B services.

Compared to restaurants, food caterers have average profitability ratio of 19.9% as compared to 4.8% restaurant. In addition, the earnings-expenditure ratio is 24.3% for food caterers while that for restaurants is 4.9%. While the data is only for 2013, it is clear that Neo Group's focus on food catering business will allow them to efficiently generate more profit per revenue as compared to Select Group.

Secondly, it's assessment that there is still room to grow in this industry is also correct in a way. Based on the same survey, the industry has grown at a average of 6% per annum from 2008 to 2013 using operating receipt growth as the method to calculate industry growth. While this percentage is not high, the important thing to note is that half of the 374 food caterers in 2013 are sole proprietorships/partnerships. While this means that there is a low barriers to entry for this business, it also means that the market is fragmented enough for a relatively large business like Neo Group which has scability to increase their market share over the years to come. Thus it will be important to see whether there is consolidation in the market like what Neo Group has stated and whether Neo Group's revenue will continue to grow at double-digit percentage.

http://www.singstat.gov.sg/docs/default-...nb2013.pdf

Lastly, Neo Group's market strategy to obtain more corporate clients and being the preferred caterers for venues are also in the right direction. Retail clients ultimately will be more price-sensitive than corporate clients given their considerable smaller budget and a more direct impact on their wallets. The % of sales from corporate clients for Neo Group has increased from 43% in the fiscal year ending Jan 2013 to 48% for the last fiscal year ending Jan 2014. Select Group on the otherhand, their revenue derived from institutional catering has actually declined by 3% over the almost same period (Select Group's fiscal year ends in Dec). By being the official caterers for venues like Star Vista Performing Arts Centre, Singapore Expo and even Costa Sands Resort in Pasir Ris, this could serve as another recurring revenue for Neo Group albeit a minuscle percentage at the moment.

At current PE ratio of 21x, it seems fair though definitely not undervalued. The key will be whether the revenue will continue to grow at a double-digit rate. If so, buying at the current price maybe a steal.

My point is that while F&B business is a cut-throat business, there are still sub-categories of such business that can earn good profits and Neo Group, being primarily a food caterer, is in the right sub-category. Neo Group and Select Group, while being food caterers, are also clearly moving in other directions. Neo Group is focused on its food catering business, with even their peripherary business like Umi Sushi and I Do Flowers & Gifts complementing the food catering business. Select Group is more focused on their restaurants and food retail business, which tends to have smaller profit margin given the cost of rental and so on. I believe after they have completed their centralized kitchen at Quality Road, their free cash flow will start to grow. However, when that will occur and whether there will be a change in business strategy is beyond my scope of knowledge.

(Not vested but monitoring)

[CityFarmer]

Neo is getting more interesting...

(not vested, but closely monitoring)

Neo Group to take 55% stake in food maker Thong Siek

SINGAPORE (May 14): Food catering firm Neo Group ( Financial Dashboard) will pay $7.35 million for a 55% stake in Thong Siek Holdings, a maker and distributor of seafood products, marking its first acquisition since its listing in 2012.

The company will fund the acquisition using cash and shares.

Thong Siek's products, which include the DoDo brand of fish balls, are sold in Singapore and Malaysia, and distributed in 22 countries worldwide.

Neo Group's founder and CEO, Neo Kah Kiat, will be appointed acting CEO of Thong Siek, which incurred a net loss of about $560,000 in 2014.

“We will be able to leverage on Thong Siek Group’s expertise in food manufacturing to streamline and further strengthen our new central kitchen’s operations for higher quality consistency while reaping economies of scale and synergies with our core businesses following the integration and streamlining of processes," Neo said in a statement today.

"The acquisition will also allow the group to create new business-to-consumers income streams, expand our customer base and market segments, while giving us access to a large distribution network across 22 countries globally."

Neo Group shares were not traded yesterday. They last closed at 94 cents.
http://www.theedgemarkets.com/sg/article...thong-siek

[CityFarmer]

Top line is +47.8%, while bottom line is +15.7%, the NPM is reducing...

However, Neo group's outlook remains very positive...

(not vested)

Neo Group records $7.4 million net profit in 14 months to end March

SINGAPORE (May 28): Neo Group ( Financial Dashboard), the integrated food and catering solutions provider, reported record revenue and net profit of $77.4 million and $7.4 million respectively for the 14-month period ended March 2015 (14M 2015) due to a change in the group’s financial year-end (from January to March).

Neo Group said a 47.1% growth in its Food Catering business segment to $57.4 million, coupled with a 51.6% rise in the Food Retail segment revenue to $19.2 million, drove the 47.8% top-line surge in 14M 2015 compared to $52.4 million for the financial year ended 31 January 2014 (FY14).

In tandem with the higher topline, the group achieved a 15.7% rise in 14M 2015 net profit from $6.4 million in FY2014.

Overall, expenses rose 51.8% from $47.0 million in FY2014 to $71.4 million in 14M 2015.
...
http://www.theedgemarkets.com/sg/article...-end-march

[kelvesy]

Hi City Farmer, after your posts, I was looking at the figures. Since for 2015, it is 14 months, do you think it is right to adjust it to 12 months - assuming the performance is linear? The report should compare 14 months with 14 months to draw a more accuracte image.

14M 2015 S$7,403,000
after adjustment
12M 2015 S$6,345,428

FY2014 S$6,398,000

It seems like profits slightly dipped.

[CityFarmer]

Hi City Farmer, after your posts, I was looking at the figures. Since for 2015, it is 14 months, do you think it is right to adjust it to 12 months - assuming the performance is linear? The report should compare 14 months with 14 months to draw a more accuracte image.

14M 2015 S$7,403,000
after adjustment
12M 2015 S$6,345,428

FY2014 S$6,398,000

It seems like profits slightly dipped.

The comparison of 14-months vs 12-months is meaningless. The caterer biz in unevenly distributed, thus a linear adjustment is also meaningless, IMO

I am more concern on the NPM, and the outlook is consistent with CEO view and recent M&A activities.

"In view of the increase in capacity from the newly operational Enterprise Road
central kitchen, and propensity to leverage on TSH’s two manufacturing facilities – in
Senoko, Singapore and Johor Bahru, Malaysia – Neo Group is poised to ride on the
favourable industry outlook, and remains positive on growth opportunities."
http://infopub.sgx.com/FileOpen/NGL%20-%...eID=353666

[opmi]

Food retail is pulling the profit down. Catering is the main driver. Banging on the big central kitchen to gain economies of scale.
Govt grants to offset labour costs.

BTW I noticed Select's Sheng Kee staff is 1 PRC supervisor + 5 local elderly workers. Seems like the configuration designed to meet the quota and grant$.

[CityFarmer]

Neo acquiring two more companies, CT Vegetables & Fruits Pte Ltd, and AMAX Foods Pte. Ltd. The considerations are S$5.4 million, and S$1.5 million respectively. Neo is pretty aggressive in its M&As...

http://infopub.sgx.com/FileOpen/NGL%20-%...eID=370087

(not vested)

[greengiraffe]

Neo acquiring two more companies, CT Vegetables & Fruits Pte Ltd, and AMAX Foods Pte. Ltd. The considerations are S$5.4 million, and  S$1.5 million respectively. Neo is pretty aggressive in its M&As...

http://infopub.sgx.com/FileOpen/NGL%20-%...eID=370087

(not vested)

http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

Results jelek due to newly acquired mfging businesses...

Maybe do less is better...

[CityFarmer]

Neo's M&A activities is continuing...

Neo Group to buy 55% of U-Market for $1.9 mil' RHB reviewing 'buy'

SINGAPORE (June 14): Food caterer Neo Group on Monday announced it has agreed to acquire a 55% stake in U-Market Place Enterprise for $1.925 million.

U-Market is involved in the manufacturing of Joo Chiat Kim Choo rice dumplings, and has branched into ready-to-eat food. It also has six outlets selling BBQ products and various meat-related items.
...
http://www2.theedgemarkets.com/sg/articl...iewing-buy