Overall, Neo Group reported strong revenue for FY2016, with a 62.0% growth in revenue yoy to S$125.4 million. The strong topline growth was boosted by the growth of its core catering business segment and maiden revenue contribution from its newly-acquired businesses, Thong Siek Holdings and CT Vegetables & Fruits. Overall, the Group’s PBT decreased by S$1.3 million to $6.1 million in FY2016 due to the expenses incurred from the maiden consolidation of TS Group and CTV. Earnings per share slid from 5.14 cents to 4.18 Singapore cents in FY16. The stock price of Neo Group is currently on a downtrend.
Neo Group is the market leader in a very fragmented industry. However, Neo’s financials aren’t in a very healthy state and proper due diligence should be done. Its quarterly results for the quarter ended 31 December 2016 – showed an 89% year-on-year decline in profit attributable to shareholders to just S$564,000. Moreover, its net debt to equity ratio is at 170% while its interest coverage ratio has turned negative. Neo Group has already incurred S$1.6 million in interest expense for the first nine months of FY2017. The company’s free cash flow for the same period is also negative due to heavy investments made.
As the Russian ruble recovers in 2016-17, Food Empire’s revenue has correspondingly rebounded. The previous decline in revenue from 2014-2016 was caused by the ruble. Moreover, Food Empire’s expansion into Vietnam is successful, with flagship brand Café Pho generally increasing IndoChina revenues significantly, even though there has been a dip in the past few months. A rebalancing of the business model through increased marketing and lower distribution fees, as well as capitalizing on its brand strength and increasing pricing of goods, caused gross profit margin in 1Q17 to increase 7.8pts y-o-y to 39.9%.
With the revival of the ruble, Food Empire’s revenue and profits are set to improve. Moreover, its sharp increase in gross profit margin driven by lower distribution costs has shown the success of their new business model. However, based on comparables, Food Empire’s operating performance/valuation is only average or below average. Food Empire’s strengths: its dominance in Russia and CIS, predicted growth within Indochina and its brand strength seems to be priced into the market already.
Thaibev’s sales of alcoholic beverage, especially the portion in Thailand market is seems to be sluggish until the end of mourning at October 2017. In the near future, Thaibev will focus on becoming a ‘total beverage player’, and gradually shift their emphasis from alcoholic beverage segment to non-alcoholic production. The restructuring may lead to drop of net profit, and Thaibev disclosed their plan of acquision in Vietnam for the possible fluctuation. Overall, Thaibev remains its leading position in Thailand’s beverage industry, and much efforts have been made into market penetration of non-alcoholic production in ASEAN area.
In 2016, Thaibev performed well in the first three quarters, but business since October 2016 has been severely affected by the passing of the King Bhumibol Adulyadej. The one-year mourning period brought continuous negative influence to Thaibev’s sales, but the firm is in the process of recovery. Thaibev could gain further benefit from its stakes in Fraser and Neave, Limited (“F&N”) and Fraser Centrepoint Limited (“FCL”) in the near future. This company is rallying, but a little bit expensive to touch at its current price.