For Information Only - No Public Offer
YKGI ("the Company") is a home grown brand with more than 30 years history in F&B. The group started in the 1950s, selling braised duck in Nee Soon. Today YKGI operates 77 retail outlets selling Yew Kee duck rice and XO minced meat noodles. It is also the exclusive franchisee of Chicha San Chen tea shops in Singapore.
The placement trache comprises 82.75m shares at Singapore 20 cents each, with 53.75m New Shares and 29m Vendor Shares. The offer closed on 1 Feb 2023 and will commence trading on 6 Feb 2023.
It was quite unusual, but the Company did not have any press release on the placement tranche or the IPO placement results as of 4 Feb. As such, I am unable to tell you whether the demand for the duck rice was "hot" or not. The market cap based on 425m shares is $85m.
Presence in Singapore
The Company operates 30 Yew Kee Duck Rice stalls as well as 30 CHICHA San Chen outlets, as shown by the map below.
Financial Highlights
The Company intends to pay out 50% of net profit as dividend to shareholders in FY2023 and FY2024. (Note that you will need to wait for another year before the dividends is paid)
What I Like About the Company
- Established household name - The Company has more than 30 years of track record and operates efficiently through an integrated central kitchen. I am sure they have a following for their duck rice, otherwise it wouldn't have survived for more than 30 years
- Competent management team - F&B is one of the toughest sectors to operate with evolving taste buds, demanding customers, labour shortage and forever rising rents. Hence they must have done well to survive in this space
Some of my concerns
- Cost pressures - The business is subject to rising rental and cost pressures. The costs can be in labour and raw materials. Whoever says running F&B business is easy...
- Low barriers of entry (highly competitive) - It is pretty easy to set up a stall as a hawker by learning how to cook braised duck from YouTube, not to mention thousands of competing food stalls in Food Courts and Hawker Centres
- Owners selling down - Seah family sold 19m vendor shares during the IPO, sending the wrong signal to the market
- Chicha San Chen revenue - The revenue growth came from the tea franchise, especially in FY2021. If you look at the 1H 2021 and 1H2022, the revenue was pretty stagnant with the bubble tea revenue coming down while the F&B operations went up. Is this a post Covid Trend whereby people return to office, order less bubble tea online etc. It's tough to see the revenue from Chicha San Chen maintaining its mojo.
Valuation
The Company has been growing pretty rapidly over the last 3 years, with revenue growing from $31.6m in FY2019 to $56.1m in FY2021. The pro-forma EPS assuming 425m Shares was 2.1 cents in FY2021. At the IPO price of 20 Singapore cents and assuming the Service Agreements had been in place, the implied PER is around 10.2x.
If I am the Company, I should probably scale up the coffee shop and food court business and then operate the stalls in those food courts and sublet the rest. Koufu was delisted in last year and the remaining peers are presented below.
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| Source: Capital IQ |
The Company is valued fairly and is at the lower end of the 10.5x to 13.1x range based on historical performance.
My ratings don't really matter since there is no public tranche. The Company is listing at a good time where sentiments have improved quite dramatically. Hopefully this will kick off the dying IPO market in Singapore.
Having said that, I am under no illusion and am fully convinced that F&B is a tough business in Singapore, so good luck to those who applied for the placement tranche. You better be a fan of Yew Kee duck rice and CHICHA San Chen to hold this for the long term.
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