GS Holdings Limited

[Shovel4farmers]

Hi all, let me start the ball rolling by doing a PEST analysis of GS.

Political: Government Grants (PIC,CIP), National Productivity Drive

Economy: Tightening foreign labor policies, Shortage of dishwashers

Social: Outsourcing, Eating out trend, Rising, Rising education level

Technology: German Centralized Dish washing machines

Foreign workers policies is irreversible and manpower shortages for F&B is permanent. In addition, as part of government's drive to raise productivity in F&B sector, they are doing everything to help the centralized dish washing succeed. (everyone knows how effective SG government can be when they want smth done). The following are the 2 main policies that gave GS the impetus it needed:

1) Collaborative industry projects (CIP)
- Top down approach where government identifies problems in industries and partners with industry player to come out with a solution for wider adoption
- funds 70% of all related cost for first time adoption of centralized dish washing for 1 year
- Very enticing to potential customers because you get to keep all the brand new crockeries bought at 70% discount

2) Productivity and Innovation Credit (PIC)
- Bottom up approach where companies come up with their own proposal to increase productivity and funding is subjected to approval
- Includes items like dishwashers, automation equipment, IT, consultancies
- 60% of cost before Aug 2016, 40% of cost after
- Subsidizes customers buying dishwashers
- The awesome part is it also subsidizes the capital expenditure of GS holdings to buy the latest German Dish washing machine

From a macro point of view centralised dish washing is the way to go in the long term.


Sent from my SM-N915G using Tapatalk

[brattzz]

ok, so what's the margins like?
just like laundry biz?

[ngcheeki]

GS Holdings does not look like a undervalued stock to own currently, Annualized PE is > 60x and P/B of > 5.0X and FCF for the last 2 years has been negative between -2.4m to -12m. Furthermore, the gearing is also pretty high at 83.6%.

Though, their business has growth potential but balance sheet has pretty high gearing and PE is too high and no Margin of safety. Better to avoid this kind of stock under such a volatile market.

The following is some number for reference:

1HFY2016
Revenue (S$'000) $4,394.00
Underlying profit/(loss) attributable to shareholders $367.00
Net Margin 8.35%
EPS (S$) $0.0028
DPS (S$) $0.0000
NTA $0.5856
Total equity (S$ '000) $77,296.00
ROE 0.47%
Net Operating Cash Flow ($569.00)
CAPEX $2,844.00
Free Cash Flow ($3,413.00)
Net Margin 8.35%


2QFY2016
Total equity (S$ '000) $9,232.00
Total Number of Shares ('000) 132,000.00
NAV (S$) $0.0699

Assets
Trade and other receivables $3,125.00
Cash (S$ '000) $5,046.00
Investment properties $5,180.00
Property, plant and equipment $11,214.00
Total values $24,565.00
Sum of assets/Total Number of Shares $0.1861

Cash (S$ '000) $5,046.00
Cash Per Shares(S$ '000) $0.0382

Debt secured non-secured Total
Payable <= 1 year(S$ '000) $3,717.00 $0.00 $3,717.00
Payable > 1 year(S$ '000) $9,046.00 $0.00 $9,046.00
Total Debt = $12,763.00
Debt / Equity 138.25%

Net Cash/Debt ($7,717.00)
Net Cash/Debt per Share ($0.06)
Net Gearing -83.59%

Total Current Asset (S$'000) $8,174.00
Total Current Liability $6,263.00
Total Non-Current Liability $9,046.00
Total Net Current Asset ($7,135.00)
Net Current Asset Per Share ($0.0541)
MOS ($0.0360)

Annualized
Market Price $0.3550
Price to Book 5.08
Dividend $0.0000
Yield 0.00%
Annualize EPS $0.01
PE 63.84


1HFY2016
The Group moved to its new facility at Loyang in March 2016. The Loyang facility is the Group’s largest facility, spanning an area of
4,500 sqm that will accommodate a total of twelve production lines, featuring greater automation. To date, the Loyang facility has
five fully operational production lines. The remaining seven lines are expected to be fully operational by end of the year. This
would increase our centralised dishware washing capacity to meet our order book of approximately S$20.6 million as at 30 June 2016.
With an anticipated tightness in the labour market for dishwashing staff and the Government's continuous effort to reduce domestic
companies' reliance on foreign workers, we continue to see a favourable shift in demand for our services.

[Shovel4farmers]

ok, so what's the margins like?
just like laundry biz?

GS is in the start-up stage where it has tremendous growth but still losing money (disregard all 1-off expenses and gains). The success of GS depends solely on economies of scale and I estimate that the critical size for GS to turn profitable is at a turnover of about 15M. With 1H16 revenue of 4.39M, GS is on track to profitability in 2017, or earlier. So to answer your question, the margins are now negative. However, as fixed cost per tub is a function of its customer base, when more customers sign up, the fixed cost per tub goes down and margins go up. GS is in a very unique position because their fixed assets (machinery, properties) are heavily subsidized by Spring Singapore, hence we can expect to see recurring Government grants in 'Other Income' under Income Statement.       

Please refer to this link to learn more about GS:
http://www.straitstimes.com/singapore/ce...m-eateries

Quote " Landlord CapitaLand Mall Asia renovated the former warehouse in IMM to make it a cleaning facility for about $1.2 million, with Spring Singapore subsidising $840,000. It was then leased to GreatSolutions, which invested $1.3 million in machinery, including an undisclosed Spring subsidy."

[Shovel4farmers]

One of Warren Buffet's criteria on investment is a honest and competent management. This post will go in detail on Mr Pang Pok, the Chairman and CEO of GS.

Pang Pok is a majority shareholder of 63.79% of the company's share and his 2015 remuneration is $180k. Pang Pok has over 20 years of experience in the F&B industry and in particular, coffee shop operations. In the IPO prospectus, it was stated that a major strength of GS is Pang Pok's strong network in the F&B industry. I happen to know people who are familiar with Pang Pok (I am also in F&B) and the feedback I got about him is very positive. To quote what one of them told me 'Many coffee shop bosses subscribed to his dish washing services to show support'. One of the major coffee shop customer is Kim San Leng Group, which has continued their subscription over the 1 year subsidized period. Nonetheless, Pang Pok's strongest network is from his family members, who are all established players in the F&B industries:

Pang Lim, brother, Kou Fu Group
Ernest Lim, brother-in-law, Eastlink, Food courts
Ms Ang Siew Kiock, Spouse, Hawkerway, Coffeeshops
Pang Loo, Sparkle System, Outsourced cleaning

Hence it is evident that Pang Pok does have some legit network in F&B industry that puts GS at a competitive advantage as compared to its competitors.

One thing I really admire about Pang Pok is that he has gone all-in for this business venture, there is no doubt that he is fully committed. As of 1H16, GS's ST debt (3.72M), LT debt (9.05M), Cash (5.05M). Out of the 12.76M total debt, Pang Pok has provided personal guarantee of 10.8M (Propectus pg 168). He has also taken an undertaking to the group (which he doesn't have to) that in the case that GS incur an operating loss in 1H16, he shall forgive a personal loan of 1M made to GS. If GS incurs an operating loss in 1H16 & FY2016, 'he shall grant additional 3M interest free loan to company and forgive it in entirety' (pg 60 prospectus). With so much at stake, you can be sure that this is a CEO who will think about the business every minute of his life.

[weijian]

One of Warren Buffet's criteria on investment is a honest and competent management. This post will go in detail on Mr Pang Pok, the Chairman and CEO of GS.

Pang Pok is a majority shareholder of 63.79% of the company's share and his 2015 remuneration is $180k. Pang Pok has over 20 years of experience in the F&B industry and in particular, coffee shop operations. In the IPO prospectus, it was stated that a major strength of GS is Pang Pok's strong network in the F&B industry. I happen to know people who are familiar with Pang Pok (I am also in F&B) and the feedback I got about him is very positive. To quote what one of them told me 'Many coffee shop bosses subscribed to his dish washing services to show support'. One of the major coffee shop customer is Kim San Leng Group, which has continued their subscription over the 1 year subsidized period. Nonetheless, Pang Pok's strongest network is from his family members, who are all established players in the F&B industries:

Pang Lim, brother, Kou Fu Group
Ernest Lim, brother-in-law, Eastlink, Food courts
Ms Ang Siew Kiock, Spouse, Hawkerway, Coffeeshops
Pang Loo, Sparkle System, Outsourced cleaning

Hence it is evident that Pang Pok does have some legit network in F&B industry that puts GS at a competitive advantage as compared to its competitors.

One thing  I really admire about Pang Pok is that  he has gone all-in for this business venture, there is no doubt that he is fully committed. As of 1H16, GS's ST debt (3.72M), LT debt (9.05M), Cash (5.05M). Out of the 12.76M total debt, Pang Pok has provided personal guarantee of 10.8M (Propectus pg 168). He has also taken an undertaking to the group (which he doesn't have to) that in the case that GS incur an operating loss in 1H16, he shall forgive a personal loan of 1M made to GS. If GS incurs an operating loss in 1H16 & FY2016, 'he shall grant additional 3M interest free loan to company and forgive it in entirety' (pg 60 prospectus). With so much at stake, you can be sure that this is a CEO who will think about the business every minute of his life.

This just smacks of related party transactions to me.

[Shovel4farmers]

This just smacks of related party transactions to me.

I don't think related party transactions are necessarily bad. In this case, where the CEO brings in more customers for the company by using his personal network, it is good for the company no matter how you look at it. In a traditional Chinese business, this is known as 'guan xi' or creating relationships.

[weijian]

hi Shovel4farmers,
I think there is a difference between 'guan xi' and been related. Those who mix up the two, necessarily may be disappointed with the end results, whether is it Mgt or the OPMI.

[opmi]

From the IPO prospectus, some of their big customers never renew their contracts.

[Shovel4farmers]

From the IPO prospectus, some of their big customers never renew their contracts.

A - Centralised Dishwashing
B - Front End Cleaning

Most of front end cleaning services were terminated to focus on core business. This is the list of Major Customers that have terminated their subscriptions. 

Customer              Services       Terminated Date       Revenue 15
ABS Brickworks      B                         Apr-15                      0.12M
NTUC Foodfare      B                         Jul-15                       0.28M 
Paradise Group      A,B                      Jan-16                      1.3M

Among the 3 I am only concerned about the termination of Paradise Group. However, there is no further breakdown of the 1.3M into segments A & B hence no clear conclusion can be made. The customer retention/turnover is a metric that I will be closely monitoring.