Should You Invest In RE&S Holdings Ltd Or No Signboard Holdings Ltd?

Food establishments enjoy high visibility among consumers, while food is ingrained in our Singaporean DNA and culture. We socialise over food, crave the latest food trend, queue up for new food outlets eager to taste the new items. There are plenty of food outlet options ranging from big to small, upscale to economical. These include neighbourhood coffee shop and hawker centres where one’s daily eating needs can be met, and high-class food courts, restaurants and boutique café where one can enjoy luxurious fare worthy for a post on Instagram.

Besides patronising food outlets as a customer, one can also consider forking out some spare funds to be a partial owner of these food businesses. In this way, our expenses at the food outlets are going back into our pocket too, through earnings increase and dividends.

This is done by investing in shares of these company. Some of the well known listed food companies in Singapore include Breadtalk Group Limited, JUMBO Group Ltd, Japan Foods Holding Ltd.

And there are 2 new kids on the block that just got listed recently – RE&S Holdings Ltd that operate the Ichiban chain, and No Signboard Holdings Ltd that runs seafood restaurant.

Let’s take a closer look at them to see if they are worth investing.

Business Model

Source: RE&S Holdings Prospectus

RE&S Holdings operates food and beverage outlets in Singapore and Malaysia under 20 brands across the full range of Japanese dining segment, from up-market to family style to convenience. It has a total of 77 outlets in Singapore and Malaysia spread across 2 business segments – Full-Service Restaurants and Quick-Service Restaurants, Convenience and Others. The former includes the well-known chain of Ichiban Boshi and Kuriya Dining, while the latter includes Men-ichi and Kuriya Japanese Market.

Source: No Signboard Holdings Prospectus

No Signboard holdings product offering is less diverse compared to RE&S. It runs the No Signboard Seafood restaurants that serve premium seafood cuisine with the White Pepper Crab as its signature dish. Besides seafood restaurants, it produces and distributes the Draft Denmark premium beers, and offers ready meals distributed locally through vending machines. It has just 4 restaurants in Singapore, with one outlet operated under a franchise model.

Use of IPO proceeds

Companies raise funds via Initial Public Offering (IPO) for different purposes that usually fall under business expansion or reduce debts. I would be happier if a company IPO to expand its business, which usually brings about revenue and earnings growth, compared to reducing debts.

For RE&S Holdings, their total IPO proceeds will be used for following purposes:

• $7m for establishment of new outlets, acquisitions, joint ventures and strategic alliance
• $2m for refurbishment of existing outlets
• $1.4m for general working capital requirements

As for No Signboard, they are earmarking the proceeds for the following:

• $10m for development of beer business
• $5m for establishing new chain of casual dining restaurant
• $2m for development of ready meal business
• $1.67m for general working capital purposes

Both companies seem to be using their IPO proceeds to expand businesses and further their growth.

Future Plans

Having said that, it is still important to find out more about the expansion details.

RE&S Holdings revealed that they see potential in the ready-to-eat meals segment in Singapore and the growing presence of online marketplace for food delivery. The focus is on growing the Quick-Service Restaurants, Convenience and Others segment locally, by expanding their ready-to-eat product offerings into supermarket under consignment sales, and growing the Kuriya Japanese Market brand. Regionally, they plan to further growth in Malaysia at strategic locations when opportunities arise.

As for No Signboard, it seems that they are branching out of the seafood restaurant business, by setting up a new chain of casual dining Chinese restaurant. The beer business is also their next focus as the company plans to expand the in-house beer brands and establish a new brewery to consolidate beer production. No Signboard will also be ramping up its ready meals offering through vending machines in various locations and other distribution channels. They have not ruled out looking into franchising, acquisitions or joint ventures too.

Financial Highlights

One thing to note that IPO is usually packaged nicely via a story of expansion, healthy growth, and exciting prospect to fetch a good price and attract investors. But what matters more are the financial performance of the company that will determine investment returns.

Source: RE&S Holdings Prospectus

RE&S’s revenue grew from $131m to $140m from FY15 to FY17. This is an annual growth rate of about 3%. The proportion Quick Service Restaurants segment has been growing from 19.4% to 25.6%. The management probably witnesses the growth and decided this to be the focus area going forward.

As for Net Profit, RE&S basically put up a mediocre report card here, with flat profit from fY15 to FY17 and a dip in FY16.

Source: No Signboard Holdings Prospectus

No Signboard showed a falling trend in revenue over FY14 to FY17. Its 9M 2017 revenue is also lower than 9M 2016 figure. Profit After Tax has a fluctuating trend, hovering around $6.5m to $9m past 3 years. Its 9m 2017 profit is higher at $6.5m, and Net Profit Margin has improved to 38.7% in 9m 2017.

Price Performance

Let’s take a look at both companies’ share price performance since listing. For info, RE&S IPO price was $0.22 and started trading on 22 Nov; No Signboard IPO price was $0.28 and started trading on 30 Nov.

RE&S had a strong opening during its first-day trading, rising as much as 65% above its IPO price. It closed strongly at $0.31, 40.9% above the listing price. However, it has since dropped consistently, to $0.24 on 7 Dec.

No Signboard fared worse. Its first day highest price was only 17.8% above IPO. Should an investor held its shares till now, he would already be suffering a paper loss of 5.3%.

Value In Action

I have placed the 2 recently listed F&B companies side-by-side for a quick comparison, and it is by no means a comprehensive study. It is still early days yet to conclude if both companies will do well or underperform. A value investor has to monitor their earnings closely, and buy when it is deemed valuable.

Want to know more about Value Investing In Asia? We have just launched our book “Value Investing In Asia; The Definitive Guide To Investing In Asia”, published by J.Wiley. Find out more about the book here.

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