MENU

No Signboard Holdings Ltd’s Initial Public Offering: 3 Risks Investors Should Know About

No Signboard Holdings Ltd is a food and beverage (F&B) outfit which has three main business segments – restaurant, beer, and ready meal.

In its initial public offering (IPO) prospectus, the company highlighted a number of risk factors that could derail its business. Here, we take a look at three of them.

Reliance on foreign labour

As of 30 June 2017, around 51.5% of No Signboard Holdings’ employees (including both full-time and part-time) were foreigners.

These foreigners are subject to applicable laws, rules and regulations. Any adverse changes to the current rules may affect its business.

In its IPO prospectus, the firm highlighted:

“For instance, the availability of foreign employees in Singapore is regulated by the MOM [Ministry of Manpower] through policy instruments such as the imposition of levies and quotas, known as dependency ratio ceilings, being the percentage of foreign employees permitted in a company’s total workforce. We are susceptible to any increase in such levies and any changes in the supply and/or quota of foreign employees that we are permitted to hire. As a result of these measures, our costs of hiring foreign employees may increase.”

Competition

The F&B industry is a highly competitive one, with low barriers to entry. No Signboard Holdings said that while it attempts to “differentiate our restaurants in terms of concepts, themes and designs, we are aware that there are other restaurants that operate similar concepts”.

No Signboard Holdings added:

“Stiff competition may lead to an overall decline in demand resulting in a downward pressure on our prices and the erosion of our profit margins.”

Its competitors range from a large and diverse group of restaurant chains to individual restaurants.

The closest listed competitor that comes to my mind is JUMBO Group Ltd (SGX: 42R), which went public two years ago. Other restaurant chain operators listed on our local bourse include Tung Lok Restaurants Ltd (SGX: 540) and Soup Restaurant Group Ltd (SGX: 5KI).

Outsourcing of beer production

In June 2017, No Signboard Holdings forayed into the beer business by acquiring an 80% stake in Danish Breweries.

Danish Breweries outsources the preparation, brewing and packaging of its beers to third-party breweries in Cambodia and Vietnam. Even though its staff are stationed at these breweries on a full-time basis, there would still be lesser control over the manufacturing process. This could lead to “production delays or interruptions, inferior product quality control and misappropriation of trade secrets”.

The restaurateur is looking to start its own brewery, and this should help to mitigate the risks associated with the outsourcing. To learn more, you can head here.

Keep up to date on the latest financial and stock market news by signing up now for a FREE subscription to The Motley Fool's investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead too.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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.