Neo Group Limited ("Neo" or "Company) is offering 22m New Shares at $0.30 each comprising 1m shares for public and 21m shares via placement. The IPO closes on 9 July at 12pm.
The Company is basically a food caterer and was ranked by Euromonitor as the no.1 events caterer in Singapore.
It has 3 brands, namely "Neo Garden Catering", "Orange Clove" and "Deli Hub". It also operates 16 food chain outlets as at 2 July 2012 under the "Umisushi" brand. Revenue grew from S$22.7m in FY 2010 to $38.4m in FY 2012 and net profit grew from $2.2m to $5.4m in the same period. EPS based on post-IPO shares and assuming the service agreement was in place will be around 3.10 Singapore cents. That translate into a historical PER of around 9.7x. Based on the IPO price, the market cap is around $43.2m
The Company intends to distribute not less than 60% of its net profits attributable to shareholders in each of FY2013, FY2014 and FY2015. (wow. that is a serious undertaking! first time i see a company provides "bao jiak" dividends for 3 years). It is also interesting to note that 84.72% of the company will be locked up for 1 years and with 'reducing balance' being locked up over 3 years. This is quite innovative indeed to demonstrate confidence in the company. I remember reading about the CEO's success story in the newspaper, quite an impressive story for a 'rags-to-riches' millionaire.
Assuming the EPS remained the same and with a dividend payout of 60%, the dividend per share will be around 1.86 Singapore cents. An investment of 1,000 shares at $0.30 will imply a yield of around 6.2%. That is very decent indeed if the business remains "constant" for the next 3 years.
The listed competitors includes Select Group Limited (currently trading at 2011 PE of around 8.9x and unlisted Kriston Food and Beverage which has filed for bankruptcy recently. I would rate Neo Group as fairly valued and even though it is a small cap company, the 6.2% yield (assuming the company continues to generate the same level of profits) is indeed attractive. With limited number of shares being issued and with majority of it tightly controlled, this stock should do well on its debut and may attract long term investors seeking for good yields. A "buy" for me and 2 chillis rating despite its small cap status.