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
- positive contribution of CT Veg as well as
- improving operations of Thong Siek Holdings (TSH).
Juliana Cai CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2016-11-14
RHB Invest
SGX Stock
Analyst Report
0.800
Same
0.800
