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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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Singapore Paincare Holdings


Singapore Paincare Holdings ("SPH" or the "Company") is offering 24.246m placement shares at 22 cents each. The offer will close on 21 July at 12pm and there is no public tranche. Based on the IPO price, the market cap is $35.56m.

 The medical group focuses on treatment of patients suffering from chronic pain.   


Financial Performance


Looking at the unaudited proforma, the revenue of SPH was around $9m for FY2019 with a profit of $2.5m. 1H 2020 has a revenue of $5.1m and profit of $1m. I would assume that the full year 2020 revenue and profits to be higher than $9m and $2.5m respectively.


Based on the IPO price of 22 cents and historical EPS of 1.24 cents, it is listing at a PER of 17.74x. 

Given that the firm is impacted by Covid 19 in the last quarter (i.e. from April to June), I would expect revenue and EPS to be affected in the last quarter as patients defer non-essential treatments.  I am not privy to the financials and if I assume revenue is just sufficient to cover costs in the last quarter, then EPS will come in at 1.24 + 1.24/2 = 1.86 cents.  Based on the IPO price of 22 cents, it translates into a forward PER of 11.8x

Peers


Looking at the valuations implied by the peers, I would say that the IPO valuation of Singapore Paincare is not excessive as they are in the high teens. Having said that, I wouldn't say it is exactly a "value or growth play" either as the reasons for why the peers are trading at such high valuations were primarily because they didn't perform to expectation post IPO. This is a segment of the healthcare sector which has always over-promised and under-delivered. 

What I like about the Company
  • Good intent - SPH aims to provide accessible paincare in Singapore and provide alternative non-surgical" treatment solutions for chronic pain patients and bridging the "gap" between open surgery (higher risk, longer recovery) and conservative physical therapies (less immediate effect)
  • Essential service and ageing population - Healthcare is always considered as essential and with an ageing population, the demand for non-invasive and affordable pain relief will increase in the coming years. (After my post, the IR firm reached out to state that there is already a growing awareness by the public on pain care management and this will help provide a strong tailwind for SPH. The IR also mentioned that SPH enjoyed high patient satisfaction and word of mouth referrals)
  • Dividend paying for next 3 years - The Company intents to pay no less than 70% of its NPAT as dividends for FY 2020, FY 2021 and FY 2022
Some of my concerns
  • No real distinct branding - Paincare Center is a pretty straightforward description of what the clinic does and there is no distinct branding behind the firm. In addition, only two of the centers have "Paincare Center" while the rest of the clinics look and feel more like more generic GP clinics that "feeds patients" to the paincare centers
  • Competitive market and consumer behaviours - Singapore is a highly competitive market and when you have an acute pain condition, you would usually turn to your family GP first, who will then refer you to a specialist. If you have a back pain, you usually find an orthopaedic doctor directly. You wouldn't go to a paincare center to diagnose that you need an orthopaedic. Hence, to become a one-stop "pain center" may require some mindset change by patients who prefer a more holistic review of their conditions unless you are able to get all the GPs to send referrals along your way (with some referral fees of course)   
  • History is stacked against them - This is a sector where many "up and coming" doctors tried to work together as a group to get themselves listed and unfortunately, in my view, they had under-delivered on their promises to be profitable and expand. There was previously an orthopedic group which tried to get itself listed but was eventually "poison-penned" away.I would say that history is stacked against them as a longer term investment, i.e. it will be challenging for the firm to expand locally and regionally  
  • Bernard Lee has quite a few "risk factors" highlighted - While it is not unusual to have risk factors associated with doctors, Dr Lee had a temporary suspension for 3 months, given demerit points as well as kana spot checked by IRAS and assessed to be liable for additional tax for "tax avoidance". These taxes will be indemnified by him. 
  • Covid-19 will likely impact the firm aversely - I would classify the treatments as non time critical in nature. It is still important but not time sensitive. As such, patients may have to defer non-essential treatments if there is a resurgence of community cases under Phase 2. The current travel restrictions and any further tightening of measurements will affect the business
Conclusion

Since there is no public tranche, the chilli ratings don't really matter. I have shared with you what I think about the Company and probably, would have given it a one chilli rating at best. 

In the short run, a small float and a well executed share placement arrangement may help with the post IPO market. In the longer term, history is stacked against the firm unless it proves otherwise.

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