Neo Group defends property foray ahead of shareholder vote

Singapore

CATALIST-LISTED Neo Group is heading into the property business for new and recurring revenue streams, even as it is still looking for opportunities in its core catering and food manufacturing business.

That's according to a statement by the board, ahead of Neo Group's annual general meeting and extraordinary general meeting on Thursday.

Said the board to shareholders: "As we will be only in the early stages of the venture, we do not expect any immediate or significant change in the company's overall revenue mix."

Neo Group announced plans late last month to diversify into property development, investment and management, through a joint venture (JV) with Catalist-listed Boldtek Holdings.

But shareholders have asked whether Boldtek is "the best partner for Neo Group's new venture", citing the decrease in revenue and net loss that the partner recorded in FY2020.

The Neo Group directors replied that Boldtek was picked as a JV partner for its "networks and experience in the property business", although they declined to comment on Boldtek's financial performance.

"Any potential opportunities undertaken by the joint-venture company will be based on our joint decision-making," the board added.

Should shareholders approve the diversification, Neo Group will hold a half-stake in the JV company, which will have an initial issued and paid-up share capital of S$1 million.

The foray into property could open revenue streams from rent and management fees, synergies with Neo Group's other businesses, and new opportunities, said the board.

"This will further diversify our business and strengthen our income base for future growth, reduce reliance on existing businesses and enhance shareholders' value."

Meanwhile, Neo Group does not face any liquidity or debt-refinancing issues and has "strong operating cash flows", the board said, to a comment on its "continuous high gearing".

The board also said that it does not plan to take any action to increase the liquidity of its shares, but may consider doing so in future.

When asked whether the group's dividend payout ratio will be raised from 11.6 per cent, it replied that it "will be more confident in paying out more dividends to our shareholders when the group achieves higher profitability in the coming years".

In its core business, Neo Group plans to widen its catering market share by growing the number of brands. It also intends to expand product variety and raise capacity in the food-manufacturing business.

This is even as the board said that growth opportunities remain in the loss-making food retail segment, including potential for more retail concepts and stronger food delivery.

While Neo Group does not plan to set up cloud kitchens at its new headquarters, "we may consider doing so in the future", the board added.

Looking at the impact of the pandemic on its operations, the group said that safe-management measures have hit the traditional catering business, but "we benefited from the short-term dormitory contracts".

Meanwhile, food manufacturing booked 50 per cent growth in the supermarket and export business as demand for home-cooked and ready-to-eat products increased, it added.