SINGAPORE (Nov 28): RHB is ceasing its coverage on events F&B caterer Neo Group due to low interest and trading liquidity of the stock.
The research house’s last recommendation on the stock was “neutral” with a target price of 64 cents.
Currently, the group’s core brands include Neo Garden, Orange Clove and Deli Hub. It also ventured into food manufacturing and food trading & supplies with the acquisition of Thong Siek, CT Vegetables and U Market, amongst others.
Apart from these acquisitions, the group also continues to expand aggressively in the catering space, by establishing new catering subsidiaries, such as Gourmetz, Kim Paradise and Savoury Catering to cater to the childcare segment and Tingkat business.
Furthermore, some of this year’s acquisitions include Lavish Dine and How Catering, with former providing high-end catering and the latter, to service the corporate/public sector.
In a Tuesday report, analyst Juliana Cai says, “As the group continues to embark on an acquisition spree, we view the high net gearing ratio of >1.9x as worrisome amidst the rising interest rate environment.”
Although the analyst recognises that the group is taking active steps to cut down on low margin business to improve on profitability and turn around new business, the group might see more downside pressure on future earnings as it increases borrowings to fund its acquisition spree.
As at 11.00am, shares in Neo Group are trading at 44 cents or 1.7 times FY19 book with a dividend yield of 1.8%.