Neo Group - RHB Invest 2016-11-14: Turnaround Story In Place

Neo Group - RHB Invest 2016-11-14: Turnaround Story In Place NEO GROUP LIMITED 5UJ.SI

Neo Group - Turnaround Story In Place

  • Neo Group announced its 2Q17 results last Friday. 2Q17 PATMI grew substantially to SGD1.1m mainly due to positive contribution from the acquisition of CT Veg in November 2015



Improving steadily. 

  • We expect Neo Group’s profitability to improve on lower advertising spending. Management had previously guided to spend about 5% of revenue on advertising. In 2Q17, the percentage of advertising expenditure fell to 3.7%. 
  • In view of the higher demand during Chinese New Year season in 2H17, we think the proportion of advertising expense will continue to decline, thereby enhancing profitability. 
  • Moreover, in the absence of new acquisitions this year, other expenses have also remained stable.


Non-core losses expected in 3Q17. 

  • Neo Group disposed 14 Senoko Way at a loss of $5.5m in November 2016. 
  • 14 Senoko Way is no longer a core property of the Group as the operations have been shifted to 22 Senoko Way. The net proceeds of $3.5m will be used to reduce current bank borrowings.


Maintain BUY with DCF-derived TP of SGD0.80. 

  • We believe Neo Group’s core PATMI is on track to turnaround with 
    1. positive contribution of CT Veg as well as 
    2. improving operations of Thong Siek Holdings (TSH).




Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-14
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800




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