ST Group Food Industries Holdings $ ST Group Food: DRX -13.85% announced on Tuesday (Feb 22) that its wholly owned subsidiary STG Food Industries (SFI) will be acquiring a 40 per cent stake in Papparich Australia Pty Ltd (PAPL) from Papparich Group Sdn Bhd (PGSB) for a cash consideration of A$1.4 million (S$1.4 million).

 

Following the acquisition of 120,000 ordinary shares, the group will increase its equity interest in PAPL from 50 per cent to 90 per cent, giving it majority control in the conduct of the business and affairs of PAPL, said the group in a bourse filing.

 

PGSB is the ST Group Food Industries' joint venture partner in relation to PAPL and is not a subsidiary or an entity within the group, the company noted.

 

The sale shares consideration was determined based on arms' length negotiation and was arrived at on a willing-buyer, willing-seller basis, taking into account various factors such as the net tangible asset value of the shares.

 

Based on the audited financial statements of PAPL for the financial year ended June 30, 2021, the net asset value of the shares stood at A$1.8 million.

 

Separately, SFI had also entered into a deed of assignment with Fabulous Entity (FESB), a subsidiary of PGSB to acquire the registered trademark rights owned by FESB to the food and beverage brand name PappaRich in Australia and New Zealand for a cash consideration of A$15,000.

 

The acquisition of the trademark will allow the group to have full autonomy to expand and grow the Papparich brand in Australia and New Zealand, said the group.

 

PGSB was ordered by the High Court of Malaya in May last year to wind up. A winding-up petition dated May 15, 2020 was filed by Chen Khai Voon against PGSB. Chan Siew Mei of KPMG Deal Advisory Sdn Bhd has been appointed as the liquidator.

 

SAC Capital has initiated coverage on the Catalist-listed food and beverage (F& B) operator ST Group Food Industries,$ ST Group Food: DRX 0% with a " buy" call target price of S$0.26.

 

In a report on Monday (Nov 29), SAC' s analyst Peggy Mak highlighted that the group is an F& B operator with a " strong brand portfolio" and believes it will continue to add on to its portfolio of outlets in the coming years.

 

Despite Covid-induced lockdowns, the group had a net addition of 14 outlets in FY2021, with " keen interests from sub-franchisees" , the report noted.

 

Mak said there are 3 main driving factors behind the creation of new outlets. They are the use of easy-to-prepare food concepts that are suitable for delivery and takeaway, outlets adopting a combination of quick service retail model and dine-in, as well as a 3000 square metre central kitchen in Melbourne which cuts the need for shop space and staff. The semi-processed food supplied from the central kitchen reduces preparation time and enables a quick turnaround.

 

The group, headquartered in Melbourne, owns exclusive franchise and licence rights to brands like PappaRich, NeNe Chicken, Hokkaido Baked Cheese Tart, Gong Cha, Ippudo, Go Noodle House and i Darts for Australia, New Zealand, the United Kingdom and Malaysia. It also owns 2 Japanese dessert brand concepts Pafu and Kurimu. It has 133 outlets as at end Sep, 2021. 49 are owned, 84 are franchised.

 

The group should benefit from the more rapid re-opening in Australia, which should on the whole lift the country' s gross domestic product in Q4 this year and in 2022, Mak said.

 

Pointing out that students are a " significant customer base" for the company with some 10 per cent of its outlets located at university campuses, Mak views that Australia' s border reopening to visa holders and students will also positively impact the company' s business.

 

The target price of S$0.26, is derived from discounted cash flow as well as a 18.7 per cent weighted average cost of capital.

 

The analyst' s projections assume a net addition of 15 outlets each year, of which two-thirds are sub-franchised.

 

" We conservatively estimate sales per outlet in FY2022 and FY2023 at 70 per cent and 80 per cent of FY2019' s level. There is upside risk to our forecast if the recovery turns out stronger," Mak said.

 

The downside risk to the forecast is a roll back of re-opening plans in the countries the group operates in, added Mak.

ST Group Food Industries' joint venture partner Papparich Group Sdn Bhd (PGSB) was ordered by the High Court of Malaya on May 5 to wind up.

 

A winding-up petition dated May 15, 2020 was filed by Chen Khai Voon against PGSB.

 

Chan Siew Mei of KPMG Deal Advisory Sdn Bhd has been appointed as the liquidator.

 

PGSB is the group' s joint venture partner in relation to Papparich Australia Pty Ltd, in which the group has a 50 per cent equity interest. It is not a subsidiary or an entity within the group.

 

ST Group Food had earlier said the winding-up petition was not expected to have any impact on its business and operations. It will get the details of the written court judgment and winding-up order in due course and could reassess the impact to the group.

 

On May 6, ST Group Food Industries Holding independent director Yap Zhi Chau acquired 460,000 shares of the Catalist-listed company for a consideration of S$335,800. Acquired via a married deal at 23 cents per share, this took his direct interest in the F& B group to 0.6 per cent. Mr Yap is also currently the group executive chairman of YYC Holdings Sdn Bhd, an accounting firm in Malaysia, a position he has held since 2015.