RE&S Holdings Limited - CGS-CIMB Research 2018-06-22: Japanese Quick-service Restaurant Specialist

RE&S HOLDINGS LIMITED SGX: 1G1

RE&S Holdings Limited - Japanese Quick-service Restaurant Specialist

RE&S is listed on the Singapore Exchange on 22 Nov 2017 at an IPO price of S$0.22.
It operates more than 70 F&B outlets (comprising full-service and quick-service restaurants) in Singapore and Malaysia, with a focus on Japanese cuisine.
The full-service restaurant segment is the group’s key revenue contributor, and includes popular casual dining brands, Ichiban Boshi and Ichiban Sushi.
Management sees greater potential in the quick-service restaurant and convenience segment, which saw higher revenue growth than the full-service segment in FY15-17.
The stock trades at a historical 12.4x FY17 P/E, below the 21.5x average of its Singapore restaurant operator peers.

RE&S is a Japanese food specialist enterprise founded by Mr Hiroshi Tatara in Singapore in 1988. The group’s concept is based on Mr Tatara’s original business idea of “Restaurants, entertainment and shows”.
RE&S now operates more than 70 F&B outlets in Singapore and Malaysia under a portfolio of 20 distinct brands. It also owns a 7-storey building that houses its corporate office and central kitchen in Tai Seng and a procurement office in Japan.

Its full-service restaurant portfolio contributed 74.4% of group FY17 revenue and comprises 11 distinct F&B brands.
As at 18 Oct 2017, RE&S has a total of 39 full-service restaurants – 34 in Singapore and five in Malaysia – with Ichiban Boshi and Ichiban Sushi accounting for 26 outlets.

As at 18 Oct 2017, RE&S owns 38 quick-service restaurants, food kiosks, bakeries and retail outlets under its quick-service restaurant, convenience and others segment. The full-service segment saw revenue dip from S$106.3m in FY15 (80.6% of group revenue) to S$104.8m in FY17 but the quick-service segment’s revenue has risen from S$26.7m in FY15 (19.4%) to S$36.0m in FY17 (25.6%).
Management sees greater growth potential for the quick-service segment amid labour crunch issues plaguing the local F&B sector.

Management organised a visit to RE&S’s central kitchen for us on 13 Jun 2018. We were impressed by the level of automation deployed and the strict quality control measures implemented. An example of such a measure is the way buckwheat (to which certain diners may be allergic) is kept and processed to prevent cross-contamination of food.
The 41,570 sq ft central kitchen supports RE&S’s Singapore F&B operations with 12 food processing lines, and also serves as a warehousing and distribution centre.

Great World City is undergoing major enhancement works (started in mid-Apr 2018), prior to the opening of the new MRT station on the Thomson-East Coast line slated for 2021F. In its 3QFY18 results announcement, RE&S stated the earnings from its six outlets in the mall may be negatively affected by the refurbishment but it opened a new Ichiban Sushi outlet in Singapore in Feb 2018 and plans to add two more outlets by end-FY18F.

The stock is currently trading at 12.4x FY17 P/E, below 21.5x historical average of its Singapore restaurant operator peers and IPO price of S$0.22.
Although RE&S lacks a formal dividend policy, IPO prospectus stated the group’s intention to pay out at least 35% of net profit in FY18-19F.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-22

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