(Stocks Discussion) SGX: Pavillion Holdings (SGX: 596)? - Seedly
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Anonymous

Asked on 02 May 2019

(Stocks Discussion) SGX: Pavillion Holdings (SGX: 596)?

Discuss anything about share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell this stock on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment!

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Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 06 May 2019

TL;DR Apart from Thai Restaurants, the company had expanded into sectors outside F&B such as property and leasing in China. Overall prospects seem gloomy with cash flows being quite weak.

Business Profile

Pavillon Holdings Ltd, together with its subsidiaries, manages three key business segments – restaurant operations, franchising, and financial leasing. To date, we own a chain of 2 self-managed restaurants and 6 franchise restaurants. Their flagship restaurant chains are Thai Village Restaurants, which serves Asian food but with a Thai twist (in my opinion)

SWOT Analysis

Strength: Their restaurants had won numerous awards and recognition which could show that the quality of the food and service is there.

Weakness: There is a lack of differentiating factor between their customer offerings and that of other restaurants. Management also may lack the expertise and knowledge in running their leasing business in China. There is also a lack of organic cash flow from their business, with decreasing revenue and high costs.

Opportunities: The company will persist in our overseas ventures to capitalize on emerging opportunities. On the financial leasing end, they are consolidating our operations given market uncertainties and their bonded warehouse in Tianjin is expected to be completed by the first quarter of 2020.

Threats: There will be a challenge to cope with increasing manpower costs will continue with the recent announcement of Budget 2019that the foreign worker quota in the services sector will be cut to 35% by 2021. Continued uncertainties on the US-China trade war have also affected market uncertainties.

Financials

Revenue

Since 2015, revenue had increased from $13.5mn to about $16.5mn in 2017. However, revenue decreased to 14mn in 2018. This happened because of 2 reasons. First, The financial leasing business in China also slowed because of weaker consumer demand for cars due to market uncertainties. Second, there was a slow down of the F&B businesses, as well as the closure of the Jurong restaurant.

Source: Pavillion Holdings Annual Report FY18

Despite having operations in several countries, almost all of the revenue still originates in Singapore. Hence, there is some form of concentration risk locally, where a change in the F&B landscape here will affect revenue very badly.

Costs

Source: Pavillion Holdings Annual Report FY18

Despite revenue decreasing, costs and expenses increased from 17mn to 29mn, a more than 50% increase which is very significant. This large increase was due to an increase in 1mn from employee compensation and an impairment loss of 12mn of a financial asset because some money owed by others became uncollectible.

Balance Sheet

Overall, the current ratio looks good with a figure of about 3. A lot of current assets are made up of receivables from subsidiaries, while 1/3 of this is from non-related parties. As seen from the write-down, there is some level of default risk here where the receivables become uncollectible. The business also holds little debt, with more cash than debt. Hence, I will not touch on other leverage and coverage ratios.

Cashflows

Cashflow from operating activities was positive at 3mn, due to a decrease in trade receivables over the year, which means that more cash had been collected from revenue generated by the company. Cash flow from investing activities had increased due to capital injections from non-related parties, which diluted the ownership of certain subsidiaries. It also increased from share transfers for one of its subsidiaries, where that subsidiary had cash holdings which increased their overall cash flow.

Conclusion...

Overall, I don't believe that the business model is very feasible with the expansion into the property and leasing business. The company's cash flows don't look very healthy either, with cash being generated mostly from capital injections.

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