Neo Group to distribute 60% of net profit as dividends

Increase in employee benefits also underway.

According to UOB Kay Hian, NGL plans to distribute at least 60% of its net profit as dividends annually for the next three years. For FY13, NGL announced a dividend of 1.5 cents (or a 71.4% payout), translating to a dividend yield of 4.5%. 

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Major shareholders with more than a combined 80% stake have also pledged to maintain 100%, 70% and 40% of their shareholdings in the first, second and third year of listing respectively. 

Market leader in a growing industry. The event catering market in Singapore grew at a solid 3-year CAGR of 11.3% from S$250m in 2009 to S$306.6m in 2011. 

Based on sales in 2011, NGL is the largest event caterer in Singapore with a market share of 9%. Contrary to other segments of the F&B industry, economies of scale are especially vital in the food catering sector as all the food are prepared in a central kitchen.

We see further room for growth by NGL as we believe its significant market share allows it to achieve economies of scale, and further benefit through quality and competitive pricing. 

Improving productivity through technology. NGL is a huge advocate of using technology in its operations. From order placement to tracking delivery, the company uses technology to increase productivity and improve customer service.

The higher productivity is evident in the 24% decline in distribution cost in FY13 as the company increased the efficiency and utilisation of their full -time
drivers. Umisushi has also turned around in FY13 as the food retail business tapped on the advertising and IT system of NGL’s catering business to improve productivity and cut cost.

Although NGL reported an 8.7% yoy rise in revenue for FY13, net profit dropped 43.9% yoy due to a one-off IPO expense of S$0.9m and a 32.7% increase in employee benefits. Excluding the non-recurrent items, net profit would have declined 27.2% yoy. 

The increase in employee benefits is in line with the company’s plans to increase its sales force to grow the corporate and government catering businesses.