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Broker's take: PhillipCapital places 'subscribe' on RE&S IPO

A BROKERAGE is recommending investors to subscribe for the initial public offering (IPO) of Japanese restaurant group RE&S Holdings Limited.

PhillipCapital noted that RE&S will trade at a historical price-earnings ratio of 13.7 times post-IPO, which is 13.8 per cent lower than the industry average of 15.9 times.

The group, which owns and operates 72 food and beverage outlets in Singapore and five in Malaysia, has a portfolio of 20 brands including Ichiban Boshi, Ichiban Sushi and Sumiya, across full-service restaurants as well as quick-service ones and convenience.

The group has a diversified portfolio with a strong track record of over 25 years, a wide range of offerings with multi-price point strategy, and has a team of experienced management, said analyst Soh Lin Sin.

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It also has improving margins, positive operating cash-flows and a high return on equity of 18.3 per cent for the 2017 financial year, she added.

While Ms Soh is expecting its earnings for the first half of the 2018 financial year to be dampened by IPO expenses as well as downtime costs and equipment write-offs from the reconstruction of Shokutsu Ten foodstreet into a Japanese food alley at Jurong Point Shopping Centre, earnings should normalise for the second half of the year, she said.

RE&S is offering 38 million shares - three million public shares and 35 million placement shares - at S$0.22 a share.

The offer price represents 11.6 times its earnings per share of 1.9 Singapore cents for the 2017 financial year, which ended on June 30.

Heliconia Capital Management, a wholly owned subsidiary of Temasek Holdings, has agreed to subscribe for 16 million cornerstone shares at this price, through Orchid 2 Investments, a vehicle it manages and controls.

The offer opened at 9pm on Wednesday night, and will close at noon on Nov 20. Trading of its shares will begin at 9am on Nov 22.