As A Listed Stock, Oversea Enterprise Announces Losses In Its 2nd Quarterly Earnings Report

Restaurant operator Oversea Enterprise was listed on 1st April 2010.

It was underwritten by OSK Investment Banking.

Here's a good article on 23 Feb 2010: OSK IB: More IPOs in the pipeline.

• ... OSK Investment Bank is the adviser, sponsor, sole underwriter and placement agent for Oversea’s IPO exercise.
  
  The group currently operates five Restoran Oversea in the Klang Valley and two in Ipoh.
  
  It also runs a contemporary dining cafe, Tsim Tung, in Cheras which caters to young people.
  
  Oversea, en route for a listing on the ACE Market of Bursa Malaysia tentatively on March 30, is looking to raise some RM13.1mil via its IPO.
  
  The IPO entails a public issue of 56.9 million new ordinary shares and an offer for sale of 9.5 million vendor shares with a par value of 20 sen at an offer price of 23 sen each.
  
  Of the public issue, 35.4 million shares are for private placement, 12 million for the Malaysian public and 9.5 million for eligible directors, employees and business associates of the group.
  
  According to Yu, Oversea also plans to refurbish its existing outlets to increase seating capacity.
  
  For the financial year ended Dec 31, 2008, Oversea registered a net profit of RM6mil on revenue of RM62.8mil. The company registered a compounded annual growth rate of 27% over the last three financial years.
  
  Its FY09 results are expected to be announced this week.
  
  OSK Investment Bank head of equity capital markets Gan Kim Khoon said Oversea would be the first company to be listed on the ACE Market since new rulings were announced last year.

Here's a nice cover story on Oversea on Star Biz: Oversea ready to take the next step

Now OSK did not rate Oversea in its IPO write but it did somehow produce a 9 page report on Oversea Enterprise.

• Valuation. We compare Oversea against its closest peers, namely KFC Holdings, QSR
  and Food Junction from Singapore which are currently trading at a forward PER in the
  range of 9 to 11x. With its offer price of RM0.23 which is at 7.8x (based on an enlarged share based of 245m) against FY10 EPS, we think that the IPO price is fair given that the company earnings is relatively smaller than the mentioned players.
  
  

Now I may be wrong but I do believe that the OSK is valuing it the correct 'way' by suggesting that a PER of 7.8x is fair when compared to others in the similar business sector. However, the key issue would be the E in the PE.

As mentioned before many times, the P and E, they are never constant and to compounds the matters worst, the E represent ESTIMATE earnings and an estimate is an estimate is an estimate.

Now OSK is basing the whole valuation exercise based on the an estimate that Oversea could earn some 7.2 million for its fy 2010. Yes, rather smallish.

May 2010, Oversea announced its first earnings as a listed ACE Market stock: Quarterly rpt on consolidated results for the financial period ended 31/3/2010. It made some 1.545 million from a sales revenue of 18.648 million.

Here is its PBT breakdown.

Last night Oversea announced its earnings.

It made losses!

It reported some 1.175 million losses from a sales revenue of 12.194 million. (Yeah, sales revenue went down a lot! What's up yo? No one eating at Oversea? )

How?

The lower sales revenue simply isn't cutting it and clearly Oversea needs to generate sales of around 18 million to be 'averagely' profitable.

From the company's earnings notes.

• The Group registered a revenue of RM12.19 million for the current quarter under review representing a decrease of RM6.45 million or 34.6% from the RM18.65 million in the preceding quarter. The Group’s loss before tax was RM1.18 million for the current quarter under review as compared to profit before tax of RM2.13 million in the preceding quarter.
  
  The loss before tax recorded for the current quarter under review was mainly due to the low season in banquet sale. Revenue from the restaurant segment decreased from RM18.67 million in the preceding quarter to RM11.10 million. On the other hand, revenue from the manufacturing segment increased by RM1.1 million due to the commencement of mooncake production. Also included in the loss before tax are expenses incurred pursuant to the Listing amounting to approximately RM228,000, which was recognized this quarter in accordance with FRSIC Consensus 13.

I guess I can't be too critical 'yet' because the 'low season in banquet sale' does appear to be a justifiable reasoning. Yeah, them wedding/birthday/anniversary/annual dinners banquet sale should boost Oversea earning come end of the year and since this is the only 2nd quarter of earnings report from Oversea, surely it is way too early to pass judgement.

But... for the kiasu investors... a bit of scepticism is probably understandable.

This is the performance of Oversea since listing.