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IPO Chilli Ratings

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Food Innovators Holding Limited

Food Innovators Holdings Limited ("FIH" or the "Company") is offering 14m shares at $0.22 each, for which 13m shares will be through placement and the remaining 1m shares via a Public Offer. The IPO will close on 14 Nov at 12 noon and starts trading on 16 Oct 9am.  FIH has two business models - the first is to be a master lease and sublease the space to other tenants and the second is to operate and manage restaurants.  The Company currently has 12 restaurants in Japan, 10 in Singapore and 4 in Malaysia. The market cap based on the IPO price is around $24.9m. Financial Highlights FIH's revenue grew from $37.8m in FY2022 to $43.8m in FY2024. It is quite funny to see that being a master land lease holder has a higher margin than operating the restaurants, once again illustrating the point that it is better to be a landlord to shake leg and collect rent. According to the prospectus, the PER is around 19x. The Company intends to pay 20% of its net profit after tax a
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Reclaims Global Limited



Reclaims Global Limited ("Reclaims Global" or the "Company") is offering 20m shares for its IPO on Catalist at $0.23 each. 18m shares will be via placement with 2m shares for the public offer. The offer will close on 7 March 2019 at 12pm. The market cap is $30.1m.

Principal Business

The Company is based in Singapore and provide services to the construction industry, specializing in the recycling of construction and demolition waste, customization of excavation solutions and operating fleet management. 

The 3 key lines of businesses are presented in the table below:


Financial Performance



Reclaims Global revenue has been declining over the last 3 years and net profits has also decreased from $6.9m to $3.2m in FY2018. For the 6 months FY2019, the revenue was stagnant and it also reported a loss due to share based payment. Excluding the share based payment, the EPS is also stagnant at 0.54 cents (see footnote 4).

The EPS for FY2019 is likely to be worse than FY2018 given the 6m loss as well as the service agreements.

Valuation

According to the prospectus, using the historical EPS and assuming the service agreements are in place, the PER is around 11.13x (compared to 8.06x). Intuitively, it would seem that the service agreement is quite lucrative, resulting in the PER jumping from 8 to 11x.

Given the likely poor FY2019 performance, i would say that the forward PER is much higher than 12x, which in my view, is very expensive in the current market environment.

What I like about the Company

  • Easy to understand business model - This is a easy to understand business. Making money from demolition and then recycling the demolished materials
  • Shares for the retail investors - While not required to do so, the Company decided to allocate 2m shares for the public offering
  • Able to win government contracts - The Company has proven that it was able to secure contracts directly from the government sectors, such as HDB, JTC and LTA.

Some of my concerns


  • Construction is a cyclical business - Reclaim's business is highly dependent on the construction industry, especially clearing up of the buildings in preparing the land for future use. It always amazes me how a company "position" itself for branding purposes, like how oil companies say they are "green". Reclaims is demolishing buildings and selling the 'waste' materials from the demolition but has branded itself as a "eco-friendly" company

  • Revenue and profitability is declining - It has been on a downtrend over the last 3 years and FY 2019 is likely to be even lower than FY2018 

  • Shares are tightly controlled - 84.7% of the Company will be held by the key management team. Liquidity will likely dry up post listing

  • Competitive landscape and limited market - My view is that the entry barrier is pretty low and the market size of Singapore is limited. There are also no strong entry barriers to this space and main contractors can budge into this space 

  • Independent board and CEO have no relevant industry expertise - I guess Andrew Chee is appointed as CEO as his skillsets "complement" the other 2 founders. The most part of his career was in the private banking space and that may prove useful in dealing with investors and future fund raising. In addition, the independent board members seemed to be overly staffed with people with audit and accounting experience (3 out of the 4 independent directors were ex auditors). Why does the board need so many accountants? It would have been better if at least one of the independent board members have relevant industry experiences and contacts 

  • Sale of vendor shares - I am really surprised by the founders bothered to sell vendor shares. The 2m shares are not significant but it sends a wrong signal to the market place

Mr IPO Chilli ratings 

I understand from sources that the Company has lowered its market valuation expectation, hence the historical PER ended at 8x. However, has the service agreement been in place, the PER would have increased to 11x. 

While I appreciate the Company setting aside some 2m shares for the retail investors, the declining revenue and profitability is a concern. In addition, the weak IPO sentiments here is not helping as well. I would avoid for now.  
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