SINGAPORE (Nov 20): Phillip Capital is recommending that investors “subscribe” to the initial public offering (IPO) of RE&S Holdings at the offer price of 22 cents.
See: RE&S launches IPO at 22 cents per share
In report last Friday, analyst Soh Lin Sin says she likes RE&S for its resilient and scalable business model; diversified portfolio with a strong track record and wide range offerings with a multi-price point strategy; and experienced management team.
The group’s multi-price point strategy offers the advantage of resiliency to changing economic cycles, elaborates the analyst, while its diverse portfolio of 20 brands across the Japanese dining segment allows it to switch brands to meet consumer preferences as well as capture different market segments.
“With improving margins, positive operating cash flows, a high return on equity (FY17 ROE at 18.3%, post-invitation), RE&S Holdings trades at a post-IPO historical P/E of 13.7 times, 13.8% discount to the industry average of 15.9 times,” says Soh.
Aside from seeing potential margin gains from its central kitchen, which has a current utilisation rate of about 60%, she adds that RE&S’ expansion into the fast-growing and higher margin Quick-Service Restaurants segment and ready-to-eat meals should allow the group even further room for margin gains.
Currently, the group operates a total of 38 quick-service restaurants, food kiosks, Japanese bakery and food retail outlets in Singapore.
“Quick-Service Restaurants has a faster turnover and lesser operating costs, thus yielding higher margins. This positive upside can be materialized faster than a Full-Service Restaurant due to lesser capital expenditure required to set up a new store and shorter period to break even,” explains the analyst.
RE&S’ IPO will close today at noon, while the listing and trading of its shares are expected to commence at 9am on Wednesday.
