Monday, 18 July 2016

Katrina Group Ltd



Katrina Group Ltd ("Katrina" or the "Company") is placing out 35.8m placement shares at $0.21 each for a listing on Catalist. The IPO will close on 22 July 2016 at 12pm. The market cap is around S$48.6m based on the IPO price.

Katrina is an operator of restaurants and cafes under different F&B Brands and concepts. The portfolio of names under Katrina are listed below


It has a portfolio of 34 restaurants. 


Financial Highlights



Based on the enlarged share cap and assuming service agreement is in place, the EPS will be 1.51 cents. This translate into a historical PER of around 13.9x.

Dividends

The Company intends to not less than 60% of net profits to shareholders for FY2016 as dividends. Assuming EPS remained at 1.51 cents, that will translate into yield of 4.3%

Use of Proceeds

The Company intends to use the proceeds to expand its business and for general working capital.

What i like about the Company
  • Can be highly profitable if the location and pricing point is right
  • The businesses are highly cashflow generative 
  • Intention to pay 60% of its profits for FY2016 as dividend
  • Simple and easy to understand business and structure
  • Expansion into China in a thoughtful way will be highly profitable (like Jumbo?)
Some of my concerns
  • Operating restaurants is not an easy business and relies heavily on manpower for its operations. 
  • The restaurants are "subjected" to higher rental revisions from time to time
  • Singapore consumers are fickle and picky and constantly seeking new experiences
  • Huge dilution to the NTA
  • While the couple controlled 84.6% of the company provides strong alignment of interest, it may be a tad too high turning it into a "family owned" business
  • i have never actually ate at these restaurants
What the peers are trading

Historical / Current Year PE Forward PE
ABR Holdings 18.3 NM
Breadtalk 42.2 23.16
Japan Food 13.21 16.62
Jumbo Group 32.07 25.07
Sakae Group NM NM
Tung Lok 43.1 45
(Source: CapIQ) 29.776 27.4625

While the peers are trading at rich valuation, it doesn't mean they make good investments. In fact, i think the whole sector is "over-valued". 

Assuming a more "reasonable" historical PE of 17x-20x, it would imply the "fair value" of Katrina is around 26 to 30 cents but if the valuation goes towards the "crazy level of 25-30x, then the price will be around 37 to 45 cents.

My Chilli ratings

Personally, i don't really like this sector for reasons mentioned above. The analysis highlighted that the entire F&B sector is "over- valued".  Based on the peer valuation,the IPO should at least see a decent debut worthy of at least 2 chillis.  Since there is no public tranche, my rating is not really important. ^_^

Happy IPOing

12 comments:

Natalie Lim said...

Thank you Mr IPO for taking time to write. Are u vested in the placement shares? How's the demand like

Mr. IPO said...

Not vested. If I am, would be mentioned in the post. Heard the demand is not bad.

Anonymous said...

Current situation in F&B is poor. They are not pulling in crowds.

Anonymous said...

so another hit and run case?? lol.
also what is your guess for opening price?

Mr. IPO said...

My guess ... 24-26

Unknown said...

Mr. IPO, how do you buy placement shares like this? Sorry newbie in IPO. Means need to open acct with UOBKH?

Mr. IPO said...

You may want to read the articles I wrote on this website ? The lessons are on the right hand side.

Anonymous said...

mr ipo will u be writing about Wong Fong

Anonymous said...

On page 44 of it's prospectus, it states "On 30 June 2016, Katrina Singapore declared final tax exempt dividends of an aggregate of S$10.0 million to the then shareholders, Alan Goh and Catherine Tan. The sum of S$7.0 million out of S$10.0 million shall be paid within one month from the date of commencement of trading of our Shares on Catalist."

Considering the company is raising $7.5mil through this placement, shouldn't this $7.0mil dividend payment to existing shareholders raise some concerns?

Natalie Lim said...

is the placement hot for this ipo mr IPO

Natalie Lim said...

Why mr IPO never write about placement results

Mr. IPO said...

No public tranche not very important lor

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