Katrina Group - DBS Research 2016-09-01: Satiating hunger pangs, online and off

KATRINA GROUP LTD. 1A0.SI

Katrina Group - Satiating hunger pangs, online and off

Growth underpinned by new outlets, regional expansion and online business.
Online business to ride on growing e-commerce market.
Project FY17F/FY18F earnings growth 13%/17%, led by new stores and online business.

Katrina aims to grow into a regional F&B foodservice player, penetrating Malaysia, Indonesia and Vietnam while securing a strong foothold in the Singapore market with more stores and online sales.

Katrina’s recent deal to place all nine brands’ food offerings with Foodpanda will help to expand its online business. Currently, the online business operates from three of its own web portals for Bali Thai, Streats and So Pho.
Its online sales are already sizeable at S$100,000 per month, equivalent to S$1.2m per year, close to the sales of an average mid-range F&B restaurant in Singapore.
We expect increase in online business to enhance overall margins going forward.

We project double digit earnings growth throughout our forecast period. This will be driven by slight margin expansion as the online business grows, more store openings, and regional expansion plans.
Our projections are consistent with its target to reach 60 stores by 2019, and improving annual sales per store towards industry average for Casual Dining and China full-service restaurants.

The stock currently trades at an undemanding 13.3x FY17F PE, below regional peer average of 20x.
Due to its relatively smaller size and lack of overseas presence compared with leading F&B companies in Singapore, we peg our valuation of Katrina at 18x FY17F PE, a 10% discount to peer average.
Delivery of growth expectations could potentially re-rate the stock. Initiate with BUY call for 36% upside, target price 43cts.

Alfie YEO DBS Vickers | http://www.dbsvickers.com/ 2016-09-01

DBS Vickers SGX Stock Analyst Report BUY Initiate BUY 0.43 Same 0.43