Company profile:
K2 F&B has over 15 years of experience in managing and operating food centres and food streets in Singapore. The main business is catering retail and store management leasing business. Under the catering retail business, the company operates a total of 45 food stalls, 9 of which are its own properties, selling food such as mixed vegetables, stir-fry, grilled meat and chicken rice. Under the store management and leasing business, the company operates and manages a total of 13 restaurants, including 12 food centers and a food street. According to the Insight Consulting Report, as of 2017, the company ranked 7th in the Singapore Food Center Management Market, with a market share of about 4.0%.
The views of China and Thailand:
The addition of new food centers has steady growth prospects: According to the Insight Consulting report, it is predicted that with the steady growth of the Singapore economy, the total number of food service establishments will continue to increase to 8,668 units in 2022, with a compound annual growth rate of 1.9% from 2017 to 2022.
The number of restaurants in the Food Courts and Food Centres segment increased at a relatively high rate of growth in the market, growing at a compound annual growth rate of 4.8% from 2013 to 2017. The company plans to purchase two additional properties, 150 Southbridge Road and 101 Yishun, a food center with excellent locations and high traffic, to increase market share and optimize geographical coverage.
In terms of operating performance: K2 F&B's net interest rates for the ten months ending 2015, 2016, 2017, and October 31, 2018 were only about 10.1%, 17.0%, 12.5% and 9.6%, respectively. The net profit margin declined 26.2% in 2017. The main reason for this was the inventory cost consumed and the two major expenses of property rent. Among them, the inventory cost consumed increased 23.6% year-on-year. Furthermore, in mid-2018, the company's property rent expenses increased by 32.05% year-on-year, but rent expenses are expected to ease as the company buys new properties. In the two years ended 31 December 2016, sales of cooked food, beverages and tobacco products remained the company's largest revenue contribution, accounting for about 79.1% and 78.3% of revenue for those two years, respectively. In terms of store management and leasing business, the company has maintained business relationships with five major customers for more than two years, accounting for about 38.1%, 37.7%, 35.2% and 23.9% of the company's revenue from store management and leasing business as of October 31, 2018, respectively.
In terms of valuation: Based on the 800 million share capital after the global public sale, the corresponding company's market value is HK$52-600 million, which is lower than its Hong Kong stock peers; the company's corresponding price-earnings ratio is about 16.7-19.2 times, higher than the industry average; the net market ratio is about 1.66-1.80 times, which is higher than the industry average.
In terms of profitability, ROE and ROA in 2017 were 15.8% and 5.93% respectively, which is higher than the industry average. Based on the company's position in the industry, performance and valuation level, we gave it 64 points, and the rating was “neutral”.
Risk warning: (1) Market competition risk (2) Cost increase risk (3) Labor shortage risk