Will Neo Group survive FY17’s muted retail landscape?

Advertising, market share dominance will be key factors.

Neo Group has locked down the recipe for success in FY17 for its catering business and its 55%-owned subsidiary Thong Siek Holdings (TSH). According to a report by RHB, Neo Group has been aggressively advertising and chalking up market share in the catering space amidst the subdued retail landscape.

Notably, many indicators suggest that Neo Group may run into trouble in the coming financial year. The food catering segment in Singapore is likely to be slightly subdued this year as many corporates have been slashing food catering expenses, and the Consumer Price Index for food catering was flattish for 2015. Also, TSH suffered from unfavourable forex changes in Q3.

However, Neo Group is poised to see strong growth in FY17 as it is anticipated to take market share from smaller players. Moreover, the company appears to be unfazed by the weaker retail sentiment.

Further, with the proposed acquisition of the new kitchen at 22 Senoko Way for $15m, the company will likely sell-off at least one of TSH’s current kitchens. A consolidation of both TSH’s existing kitchen facilities into the new kitchen would serve as a key catalyst to boost operational efficiencies.

RHB also notes that TSH’s losses pale in comparison to the positive potential value of DoDo fish balls and the network TSH could bring.