Harry's Holdings

[Musicwhiz]

I owns some shares in Harry Holdings when it was first listed on the OTC and is looking at this as an opportunity to 'cash' out my initial investment. It was listed at 22c and currently trades on the OTC at 20.5c. So it remains to be seen if the move to Catalist will really give me an opportunity to cash out. Even if it doesn't, my initial stake was small as I was curious about the working of the OTC market.

It was dydx who first introduced me to Harry's Holdings back on the old Wallstraits forum. After reviewing their financials and business model, as well as trying out the food at some of their outlets and seeing the crowds there on weekdays and weekends, I decided to adopt a wait and see attitude.

Generally, I do not like investing in F&B businesses (e.g. Soup Restaurant, Old Chang Kee) because they have low barriers to entry and there is intense rivalry among existing players. This makes it hard to sustain brand awareness and decent margins, not to mention cash flow.

I think for Harry's, I will continue to monitor it even after it lists on Catalist.

[lonewolf]

may i ask when was harry holdings first listed in the otc market through poems? and so far is there any dividends that u have received since holding this unlisted otc counter?

According to my record, it was listed in Jan 2007.

So far I have received 2 dividends payment.

Oct 07: 0.22c
Jul 08: 0.22c

For those wondering how dividend are paid, they credited into your POEMS account.

[mikh]

From what i read in the prospectus, Harry's seems to focus on East Asian cuisine for their F&B. Their outlets do not use the Harry name, or a western front - hence branding and marketing synergy is limited. Core business bringing in the dough is clearly still the Pubs. ie. rest of biz still looks like after-thoughts or just forays, up to this point. Not seeing the margins in the F&B either.

[kazukirai]

From what i read in the prospectus, Harry's seems to focus on East Asian cuisine for their F&B. Their outlets do not use the Harry name, or a western front - hence branding and marketing synergy is limited.

I think that having another group of restaurants focusing on a different type of cuisine is not a bad thing actually.

I was browsing this book' Success Secrets Exposed' by Thomas Fernandes and Sant Qiu and in the book, Ivan Lee of Thai Express was sharing his experience in the F&B industry.

His thinking is that, within a small geographical location like Singapore, there is only a limit to how many Thai Express restaurants he could open. Hence, he opened other eating places like Xin Wang HK cafe, Pin Le snacks etc. to cater to other different niches within the same industry.

Given that margins are thin in the F&B industry, naturally it becomes a market share game no? Earn 1 cent from as many people as possible and one can make a lot of money too right? (by this, it means having to cater to as many tastes as possible and having a single brand, I think it is diffcult to do so. In fact, trying to cater to too diverse a group with a single brand may even seek to dilute the brand with the initial purists.)

That's also why Breadtalk has Food Republic and Ding Tai Fung etc. and not many of their customers would even know that all these businesses are owned by the same company.

Having said all that, hope that others within the industry or having the experience can share their views as well to point out where my thought process may have been faulty.

This is deviating slightly from the topic of Harry's but industry knowledge of its operating environment should/will help in evaluating its business I think.

[mikh]

His thinking is that, within a small geographical location like Singapore, there is only a limit to how many Thai Express restaurants he could open. Hence, he opened other eating places like Xin Wang HK cafe, Pin Le snacks etc. to cater to other different niches within the same industry.

Given that margins are thin in the F&B industry, naturally it becomes a market share game no? Earn 1 cent from as many people as possible and one can make a lot of money too right? (by this, it means having to cater to as many tastes as possible and having a single brand, I think it is diffcult to do so. In fact, trying to cater to too diverse a group with a single brand may even seek to dilute the brand with the initial purists.)

That's quite true. However in Harry's case, the argument is weak until the Restaurants are profitable and it's 3 years already(?). Currently, it does not show that they are able to leverage any competence or synergy from running Pubs, or vice versa. Of course, this is based on what the numbers show on paper.

Am not in the industry. Good to hear from people in the industry about possible synergy and if 3 years of bleed is a plausibly acceptable omen.

[dydx]

Harry's Bar - the 1st bar in Boat Quay was opened in 1992 - is a profitable business. Over the years, through ploughing back profits supplemented by limited financing facilities from banks (mainly UOB and Bank of East Asia), this business has grown to the current chain of 30 bars (as at 10Nov10, the latest practicable date used in the preliminary IPO prospectus), including 2 opened in FY09 and 5 so far in FY10 - which presumbly have not yet attained their normal profitability potential. It is also relevant to note that, in the course of its growth path so far, Harry's has only closed 4 bars in FY09 and FY10, presumably due to a lack of sufficient business volume or too high rental (including on lease renewal). In FY09, the Harry's Bar business produced a revenue of $30.99m (83.2% of group total) and a PBT of $2.3m (92.7% of group total).

The Harry's Restaurants cum Bars buisness started its first restaurant "Mirchi - Taste of India" in Jul03 at the Esplanade more like an experiment, as Harry's also started introducing a wider menu of food items for lunch and dinners. Over the years, this division has opened, under diferent food formats (Moroccan lounge, Indian kebab, sandwich cafe, etc.), a total of 13 outlets, including 1 in FY09 and 4 so far in FY10; after closing 4 outlets in FY08 and FY09, it now has a total of 9 outlets as at 10Nov10. In FY09, this division produced a revenue of $4.05m (10.9% of group total) and a PBT of $176k (7.1% of group total).

Harry's also has a small but steady franchised Gymboree Play & Music Programme business, which in FY09, produced a revenue of $1.43m (3.8% of group total) and a PBT of $112k (4.5% of group total).

We should be mindful that in FY09 and H1-FY10, Harry's group PBT was negatively impacted by start-up costs/losses (FY09: loss $207k; H1-FY10: loss $767k) of the new Hospitality division - essentially a 22-room boutique hotel "The Club by harry's hospitality" located at Ann Siang Hill - which only commenced buisness in May10, and produced a revenue of $279k till 30Jun10.

[All the above is extracted from the preliminary IPO prospectus.]

The man behind Harry's is founder Mohan Mulani (who together with his wife Rita hold a combined 57.5% stake in Harry's), aged 50, a graduate from UCLA, and has also attended self-financed business management programmes at the Graduate School of Business, Stanford University, and the Kellogg School of Management, Northwestern University. Based on Harry's growth record, I believe Mulani is already a proven business entrepreneur-manager with a lot of drive, and special skills in brand-building, F&B concepts, spotting promising retail locations for F&B operations, and negotiating with landlords.

Based on the existing pre-IPO issued share base of 71.0m shares, and the last done share price of $0.205 (quoted by Phillip-OTC), Harry's now has a market cap. of $14.35m. I believe this is way too low for an already established F&B business with a strong brand-name and a projected group revenue of close to $40.0m in FY10. Of course, it is also reasonable to believe that post-IPO, Harry's businesses will continue to grow.

Harry's preliminary IPO prospectus makes interesting reading.....
http://info.sgx.com/Offers.nsf/0/DDC0FF7...penelement

[pianist]

side-track a bit, how to buy companies shares via OTC market for retail investors besides the only available tools in sg - phillips' OTC market trading system?

i find it also a bit strange that phillips' OTC system looks like a mini-listed exchange - there are only a few OTC counters available in their system..not much choice..i thought OTC market is something much bigger, much broader than what exchanges can provide?

[dydx]

side-track a bit, how to buy companies shares via OTC market for retail investors besides the only available tools in sg - phillips' OTC market trading system?

i find it also a bit strange that phillips' OTC system looks like a mini-listed exchange - there are only a few OTC counters available in their system..not much choice..i thought OTC market is something much bigger, much broader than what exchanges can provide?

To participate in Phillip's OTC market, you first have to have a trading account with Phillip. Then there is also a need to be 'qualified' by filling in some additional forms (including disclosing your income/wealth and investment history), before Phillip would grant the approval for you to trade in the OTC market.

I guess before Harry's latest plan to list on Catalist, one could always try to talk to Mr Mulani to express interest to buy a meaningful amount of Harry's shares, and he may accede to the request by selling some from his or his wife's shareholdings, or by getting Harry's to do a small new share placement. Now that Harry's IPO is imminent, I doubt this route is still available.

On the other hand, you can still try to buy some Harry's shares in the coming IPO, by finding out from the sponsor Collins Stewart the brokers that will be doing the new shares placement. As the placement is unlikely to involve a big number of new shares - in order to minimise ownership dilution to the Mulani's and the existing shareholders - the offer price of the new shares is likely to be higher than the current share price of $0.20. Ultimately, the offer price will depend on the advice from the sponsor and the market conditions before luanching the IPO.

Phillip's OTC market is as good as dead. It is very difficult to build credibility and acceptance for such a market, unless it is backed by direct official support. I suppose most people who have bought Harry's shares did so mainly because of the qualities of the company's core businesses, and accepted the deficient OTC market.

[dydx]

As expected, in an EGM held yesterday (13Dec10), Harry's shareholders approved the company terminating the quotation of its shares on the Phillip-OTC, and the transfer of the listing and quotation of its shares to SGX-ST Catalist.....
http://internetfileserver.phillip.com.sg...rading.pdf

I suppose the actual listing on Catalist should be quite imminent.

[Musicwhiz]

Jan 13, 2011
Harry's IPO to fund overseas expansion
Firm hopes to raise over $5m and is looking at franchise model in countries like China
By Dhevarajan Devadas

BAR and restaurant operator Harry's is eyeing overseas expansion on the back of an initial public offering (IPO) that is expected to raise $5.28 million.

The company yesterday announced that it is offering 24 million shares at 22 cents apiece in conjunction with its listing on the Singapore Exchange Securities Trading Catalist.

Company chief executive Mohan Mulani said 60 per cent of the firm's IPO proceeds will be channelled into expansion.

He announced that Harry's was looking into adopting a franchise model by the end of this year, which would allow the relatively small company to grow overseas.

'We feel that by opening successful franchises in other countries, we can prove how strong the Harry's brand is,' he said.

Locations being considered include Vietnam and China, and Mr Mulani revealed that he is in talks with a number of interested parties in China. He hopes that the first Harry's bar outside Singapore will open some time next year.

Direct investments and joint ventures both in Singapore and overseas are also on the cards.

Mr Mulani admitted that part of the reason for Harry's wanting to expand into other countries was the saturation of the local market.

'We currently have about 32 bars and seven restaurants in Singapore. I don't think there is much room to grow any further, with regard to this area.'

In May last year, the firm diversified its food-and-beverage domain with the opening of the 22-room Club Hotel in Ann Siang Road.

It also started a catering business in 2008.

Mr Mulani said Harry's is looking into expanding its hotel business locally, and plans to establish new distribution channels for its branded beer by appointing distributors and offering it for sale at selected supermarkets.

This will help it capture a wider market and improve the brand's standing, but Mr Mulani stressed that the bar business will remain the mainstay of the company's operations despite diversification.

ddheva@sph.com.sg