Events-caterer Neo Group Ltd (SGX: 5UJ) might only have a short history as a publicly-listed firm, but its performance thus far has been great. Since its listing at a price of S$0.30 in July 2012, it has now gained 210% to S$0.93 as of yesterday. In comparison, the broader market, as represented by the Straits Times Index (SGX: ^STI), has gained only slightly more than 11% in the same period at the index’s current level of 3,339 points. Neo Group’s impressive share price performance hasn’t come about in a vacuum. For instance, its revenue of S$23 million for the fiscal…
Events-caterer Neo Group Ltd (SGX: 5UJ) might only have a short history as a publicly-listed firm, but its performance thus far has been great.
Since its listing at a price of S$0.30 in July 2012, it has now gained 210% to S$0.93 as of yesterday. In comparison, the broader market, as represented by the Straits Times Index (SGX: ^STI), has gained only slightly more than 11% in the same period at the index’s current level of 3,339 points.
Neo Group’s impressive share price performance hasn’t come about in a vacuum. For instance, its revenue of S$23 million for the fiscal year ended 31 Jan 2010 (FY2010) has more than doubled to S$52 million for FY2014. Along the way, its bottom-line nearly tripled from S$2.2 million to S$6.4 million; its operating cash flow, meanwhile, also jumped from S$4.4 million to S$7.9 million.
Lately though, the company seems to have hit a bit of a snag. For the six months ended 31 July 2014 (the first half of FY2015), Neo Group saw revenue grow by 21% year-on-year to S$28 million. Its profit though, couldn’t keep up as rising expenses took its toll – the bottom-line fell by 9.1% to S$2.5 million. I shall not dwell on the figures too much as my colleague Sudhan P has already given a comprehensive look at the company’s latest earnings release.
What I want to do here is to share some of the steps Neo Group’s management is taking to drive further growth. Yesterday, the company had invited myself and two of my colleagues for a media and analyst briefing and lunch for a review of its financial results for the first half of FY2015.
The importance of such meetings
My colleague Chin Hui Leong had recently pointed out the importance of listening into such analyst briefings as much as possible. He said:
“For investors, what’s beneficial about the [briefings] is that it allows questions from analysts which usually go beyond the information shared during the official quarterly results announcements. In addition, it provides the opportunity for a company’s management team to share their thoughts on different topics.”
But despite their importance, Hui Leong also mentioned that it’s not all that common for local companies to record and broadcast such meetings or provide transcripts. As such, I wanted to share what Neo Group’s management had discussed in the briefing because a lot of the information they talked about did indeed go beyond what was put onto paper in the materials for its earnings release. So, here goes.
First bit of information: Driving corporate client growth
In FY2014, Neo Group’s Food Catering business division accounted for three quarters of its annual revenue. Within this division, the company has different brands which target different parts of the catering market segments. In 2012, a study by research outfit Euromonitor pegged the events catering market in Singapore in 2011 at slightly more than S$300 million (that figure might be closer to S$400 million today). According to management, that S$300 million figure is roughly segmented into Corporates (~S$200 million), and Households (~S$100 million).
There’s no breakdown of revenue contributions from the four different brands (one of which is intensely focused on the high-end corporate catering segment) within Neo Group’s Food Catering business division. But, given revenue of just S$39 million for the entire division in FY2014, suffice to say that there’s still plenty of opportunity in the corporate catering segment for the company.
In order to capture that opportunity, Elvis Lee, Executive Director for Business Development for Neo Group, mentioned that the company is looking at doubling its sales force from a current count of around 45 in the near future. The corporate sales team within Neo Group is grouped to serve clients according to industry classifications; this is done so that the sales team in each industry can form intimate knowledge within it and provide timely and customised services. This might hopefully result in stickier corporate clients.
It should be noted though, that hiring comes with its risks. In the first half of FY2015, half of the monetary value of Neo Group’s revenue increase had gone toward an increase in employee benefits expenses. In other words, it certainly won’t be cheap for the company to double its sales staff. And so, like Hui Leong pointed out earlier today, “we should look out for the company’s ability to scale corporate sales in the catering division faster than expenses for the years ahead.”
Second bit of information: Targeted marketing
As mentioned earlier, Neo Group has different catering brands which cater to different segments of the market. To drive further growth, the company is looking at targeting specific relatively untapped areas within each segment.
For instance, when it comes to households, there are 40,000 babies born each month. And in accordance with Singapore Chinese customs, families tend to hold celebratory events when new-borns become one month old. Given the family-friendly theme of the company’s Neo Garden catering brand, that’s an area Neo Group is targeting specifically through promotional campaigns.
Weddings are another area which the company is looking to drive engagement in (pun intended!) specifically. To do that, Neo Group’s high-end catering brand Orange Clove would be setting up a specific division to handle wedding catering events. There are easily more than 24,000 weddings each year in Singapore – with each wedding catering event potentially priced in the thousands according to management, that’s also significant opportunity there to add to the company’s revenue base.
Third bit of information: Venue catering
Neo Group’s also working hard at being the preferred events caterer for venues. Earlier in May, the company announced that it has been appointed as one of the official caterers for the Singapore Expo and The Star Performing Arts Centre. It’s been only three to four months since, but Neo Group has already been deriving “five-figure sales per month” from each of these venues.
With a stronger corporate sales force in place in the future (not to mention the larger centralised kitchen the company now has), Neo Group might be even better equipped to capture some of that opportunity there.
Foolish Bottom Line
It’s not always easy for individual investors to gain access to a company’s top-level management to hear about their challenges and plans. That’s why my colleagues and I at The Motley Fool Singapore aim to bring you any interesting insights we can glean about a company from its management team whenever we have the chance to do so.
What I’ve shared above concerns Neo Group’s future, so investors can use them to form a more complete outlook about the company.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Neo Group.