Singapore’s Big Loser for the Week: Select Group Limited

One of the biggest losers in Singapore’s share market this week is Select Group Limited (SGX: 5FQ). It has slumped around 9% since last Friday to close at S$0.41 yesterday. In comparison, the SPDR STI ETF (SGX:ES3), a proxy for the Straits Times Index (SGX:^STI),  was up 2.2% during the same period.

Select Group is a food service provider which has brand presence in Chinese fine dining, events catering, and quick service restaurant, among others. Under its stable, it has brands such as Peach Garden, Stamford Catering Services, and Texas Chicken. A full list of eateries owned by Select Group can be found here.

Last week, the company announced that it had incorporated a wholly-owned subsidiary, Hill Street Coffee Shop Sdn. Bhd., in the national capital of Malaysia, Kuala Lumpur. The newly-incorporated subsidiary will provide food catering services in the country and will be funded through internal resources.

For the first half of 2014 that ended 30 June 2014, Select Group saw a revenue increase of 10.5% year-on-year to S$72.2 million mainly due to the opening of new food outlets like the Chinatown Food Street and growth in food catering.

Despite the uptick in revenue, gross profit margin reduced from 70% last year to 67% in the latest period due to higher raw material costs and sales discounts given on the back of intense competition.

Net profit grew 53.7% to S$3.1 million, mainly due to receipts of a S$1 million government grant. Last year, net profit came in at S$2 million. If the one-off grant was stripped off, increases in administrative and finance costs of 8.9% and 35% respectively would have eaten into the net profits.

Going forward, the firm said the following:

“The F&B industry will remain challenging and competitive due to rising commercial rents and manpower shortages. The Group will continue to focus on its multiple-brand business model, manage its costs and business expansion prudently to operate with a view of sustaining profitability through cost rationalization, productivity enhancement and improving customer service quality through on-going staff training.”

Select Group is trading at around 21 times its historical earnings.

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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 contributor Sudhan P doesn’t own shares in any companies mentioned.