Happy Monday, Barkada --
The PSE lost 20 points to 7419 ▼0.3%
CREIT IPO rescheduled to Tuesday, February 22! More on that below.
Also, don't look now but Bitcoin and Ethereum are dumping. Is another crypto winter on the horizon? Given the run-up in crypto prices and the explosion in tangentially-related crypto "assets" (like NFTs and play-to-earn schemes), there's likely a whole generation of crypto-exposed investors that haven't felt the deep, extended, "holy god when will this end?" sting of a real crypto winter.
Thanks to Jing and Angry Kitty for pointing out that the NoCD thing was a problem for the AREIT IPO as well. I'd forgotten about that!
Shout-outs to Rymnd Rys Grgsn, Alfredo Manugas V11, james victor Villanueva, Just’n, PDF Trader, ash1eyr10t, Jonathan Burac, Joe Latham, Palaboy Trader, meloi, Froilan Ramos, ambondoc, Chip Sillesa, Carl Ambráy, Lance Nazal, mArQo, Rolex Jodieres, Lysender, Evolves Capital, Inc., and Jing for the retweets, and to Mike Ting, Gary Manalo, and Evolves.co for the FB shares.
▌In today's MB:
- Balai Ni Fruitas applies to SEC for ₱309 million March IPO
- Citicore Energy REIT will finally have its IPO this Tuesday
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▌Top 3 MB indices:
POGO Prop. ▲1.16% D30 Targets ▲0.89% #COVID-19 ▲0.52% ▌Bottom 3 MB indices:
NEET ▼3.97% Connectivity ▼2.68% Fast Food ▼1.84% ▌Main stories covered:
[IPO] Balai Ni Fruitas [BALAI 0.75 pre-SEC] applies to SEC for ₱309 million March IPO... BALAI is a food brand holding company that is a wholly-owned subsidiary of Fruitas [FRUIT 1.23 ▲1.65%], which is also a food brand holding company. BALAI is hoping to raise up to ₱309 million through the sale of 325 million primary and 87 million secondary common shares at ₱0.75/share. The deal is underwritten by FirstMetro Securities, will feature a stabilization fund (no agent selected yet), and if the over-allotment option is fully exercised by FirstMetro, will result in the public owning approximately 27.5% of BALAI on its IPO day. The prospectus says that BALAI will price the offer on March 7, conduct the offer period from March 16 to March 22, and hold its IPO on March 30.
- The company: BALAI is a holding company that owns Buko Ni Fruitas, Fruitas House of Desserts, and Balai Pandesal.
- Primary vs secondary shares: The offer is 79% primary shares and 21% secondary shares, but just under half of the secondary shares on sale will actually be used for the over-allotment option / stabilization fund. Primary shares are “new” shares created by the company, BALAI, and the money raised through their sale goes directly to BALAI’s account for use in growing the business. Secondary shares are already-existing shares owned by some other company or person (in this case, FRUIT), and the money raised through their sale goes to that company or person -- not to BALAI.
- Use of proceeds: BALAI estimates that it will net around ₱220 million from the IPO, and plans to use 81% of that on “store network expansion” to build 120 locations until the end of 2023. It plans to use roughly 9% of the proceeds on establishing its commissary to support the operations of its three brands. The remaining 9% will go toward “potential acquisitions” of other baked goods businesses.
- IPO tranches: They’re going with the traditional 70/20/10 split; 70% of the IPO will be dedicated to an institutional tranche, 20% will go to the broker tranche, and 10% is reserved for the PSE EASy tranche. PSE EASy investors are capped at ₱100,000 per subscription request.
- Historical financials: This is where things get interesting. BALAI provided financials from 2017 through 2020, with partial data for 2021 covering just the first nine months of the year. BALAI reports its net income in 2017 as ₱13.9 million, which was down to ₱4.5 million in 2018, up to ₱7 million in 2019, and down to a ₱1 million net loss in 2020. So far as BALAI has reported for the first nine months of 2021, it’s recorded a net income of ₱2.3 million; on pace for its second-worst year in the past five that we have data for. BALAI blames COVID for the downturn in 2020, which makes perfect sense and needs not be interrogated too much considering all of our collective experience in analyzing small-format food brand sales drops due to lockdowns and other movement restrictions. That makes sense for 2020, and for part of 2021, but what accounts for the drop from 2017 to 2018? Perhaps it has something to do with BALAI’s store growth between 2017 and 2018, when it expanded from 77 stores to 83 stores. Perhaps not, though, considering the number of stores appears to bounce around a bit, and without too much rhyme or reason; it had 77 stores in 2017, 77 stores in 2018, up to 83 stores in 2019, but down to 74 stores in 2020, and now sitting with 69 stores (nice), but with a confusing new twist of separating out 6 of those stores as “franchise” stores and 63 as owned stores.
- The ticker symbol: The prospectus sadly fails to define the company’s ticker symbol, instead giving us only the placeholder “[•]”. I’ve gone ahead and given the company the ticker, “BALAI”, because: (1) it looks different and sounds cool, (2) it’s a “word” ticker like its parent, FRUIT, and (3) it’s way better than the acronym of its corporate name, “BNF”. Sure, the word might be Malay (“balai” apparently means “house”), but it’s still perfectly representative, so I’m going with that (and I hope they do, too).
- Next steps: This is only the application to the SEC, so BALAI will need to get SEC approval first before it can move ahead and actually submit its application to the PSE to list. Whether or not it can accomplish all of that in time to meet its placeholder dates (pricing on March 1 is just a week away) is pretty unlikely, but weirder things have happened. I’m also wondering if the PSE (the exchange, not the traders) can emotionally handle three IPOs happening within an 8-day span.
- MB: I’m not sure how I feel about baby BALAI considering that, to me, daddy FRUIT still feels like a work-in-progress. Lester Yu, the owner and CEO of both FRUIT and BALAI, had the misfortune of hitting the market with his food kiosk business just before the greatest medical event of our generation made eating in public seem unthinkable for a huge period of time. I’ve spent plenty of time talking about how I respected Mr. Yu’s pivot away from the kiosk-based nature of FRUIT’s original business plan to adopt an online-friendly platform concept centered around delivery of a diverse “brandscape” of different offerings. I’ve done that so much, in fact, that a few Barkadans have written me personal notes to question whether I’m actually just a shill/hype-man for FRUIT. If I am a shill, I’m the dumbest shill alive, since I’ve done all my shilling without owning a single share of FRUIT or receiving a single peso from the company for any of the nice things that I’ve said about Mr. Yu. All of that aside, everything seems in place for this BALAI offering; it’s got a plan, the plan looks normal, and nothing seems out of the ordinary. It’s not a cash-out. It doesn’t feel outrageous in any way. But maybe that’s part of the problem for me: I don’t feel compelled (from this vantage point) to do anything with all of this information. It doesn’t grab me with grand visions of how BALAI can fit into the future, or coyly reveal a set of financials with escalating profits that imply the company is headed for the moon and I’m a half-second away from missing out. Net profits are frothy and low, with top-line inputs (foot traffic) that are vulnerable to COVID and pandemic-related issues, and bottom-line inputs (cost of raw materials like flour) that are vulnerable to supply chain problems and inflation. It feels like a less-exciting version of FRUIT, which is itself kind of a sinking ship of shareholder value, down some 32% from its pre-Delta variant high of ₱1.82/share, and down 27% from its 2019 IPO price of ₱1.68/share. It’s only up 17% from the very depths of the 2020 COVID crash.
[UPDATE] Citicore Energy REIT [CREIT 2.55 pre-IPO] will finally have its IPO this Tuesday... After weathering a few days of uncertainty, CREIT and the Megawide [MWIDE 5.45 ▼0.73%] ownership group will finally be able to plan the IPO party with some confidence, as the PSE has approved CREIT’s IPO for this Tuesday, February 22. That’s five days later than the originally-scheduled IPO date. We don’t have any additional information on the cause of the delay, only that there was some issue between the receiving agent, the underwriter, and the Philippine Depository & Trust Corporation. Zooming out, we also don’t know if the parties involved have figured out a way to keep this from happening again to any of the REIT IPOs that are tentatively planned for this year, like the CentralHub, the Jollibee [JFC 247.00 ▼1.98%] and DoubleDragon [DD 10.24 ▲3.33%] industrial REIT, and the Villar Family REIT.
- MB: I think this is one of those situations where the damage done is hard to see. CREIT will still hold the IPO, the IPO buyers will still get their shares, the PSE will still get its listing fee from CREIT, and the underwriter and all of the other service agents in the deal will still get their fees. But imagine, just for a second, that you’re one of the many investors that was given a partial PSE EASy allocation, told to fetch a physical check from Makati for your refund, and then had to sit and wait while the shares that you paid for remain unlisted for five days beyond the planned IPO date. That’s not a situation that anyone investing in the Philippines should expect to experience simply as a cost of doing business in this market, and yet, here we are. To continue to encourage the wonderful reception that REITs have received from us retail investors, I hope the PSE will soon provide a full accounting of the problems that caused the delay and reveal the immediate steps that it’s taken to fix the problems for next time.
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