• Neo Group (Neo) is trading at 5.4x 2015 P/B and 17.6x 2015 PE.
• Neo is Singapore’s No. 1 event caterer, having captured 10% market share of the
country’s S$360m catering industry. In addition to the household brand Neo Garden
Catering, the company has several other brands under its belt such as Orange
Clove, Delihub and Best Catering so as to capture the catering industry’s different
market segments. Neo also operates several food retail points under umisushi, issho
izakaya and nanami udon.
• Recently, Neo announced that it will acquire a 55% stake in Thong Siek Group
for S$7.35m. Thong Siek manufactures and distributes seafood and Surimi-based
products under the “DoDo” brand to 22 countries in Asia, Europe and the US.
• Reported its 14M15 financial results after it changed its financial year end
from 31 January to 31 March. Revenue jumped 47.8% yoy to S$77.4m partly due
to the longer financial year period (14 months vs 12 months in FY14) and stronger
sales from its food catering business which reached S$57.4m. (FY14: S$39.0m).
However, NPAT only grew 15.7% to S$7.4m as the company had to increase
employee benefits expenses to S$20.1m in the 14 months (FY14: S$15.8m) due to
the additional headcount in the new facility at 1 Enterprise Road to support the
• Strong cash generative business. Customers have to pay by cash or cheque
upon delivery which explains its strong operating cashflow. Net cash from
operations rose 33.6% to S$10.5m in 14M15 from S$7.86m in the last financial
year. But unlike obtaining longer credit terms from its suppliers, management
revealed that it will rather purchase most of its raw materials on cash terms in order
to secure better prices and which will translate to higher profits.
• Neo is also able to capture margins along the value chain. By reaching out
directly to customers through its food catering business and retail outlets from its
own established central kitchen and food trading and supplies business, Neo is able
to extract margins by enjoying economies of scale and sourcing ingredients in bulk
and bypassing the middle man. As such, Neo is able to report higher net profit
margins of 9.6% as compared with peers’ 2.1-7.6%.
• Demand for food catering set to rise on the back of growing MICE activities and
Neo securing various venue-tied official/preferred caterer partnerships. In addition,
home dwellers may start switching to daily meals catered by Neo in view of the
convenience and healthier choices (option of less oil, less salt or brown rice), both of
which appeals to younger home owners.
• However, risks to new investors could be the lack of liquidity as only
US$0.03m worth of shares were traded on average in the last 30 days.
Source : UOB KayHian Research
Labels: Consumer Sector, Neo Group Limited