Reopening play: The F&B sector

The pandemic has rendered many stock prices down to January 2021 levels.

Bargains are aplenty if one still has the firepower to take advantage of Bursa Malaysia’s mega sales.

One sector which has been brutally affected since the pandemic begun is the Food & Beverage (F&B) sector. We have read of so many cafes and restaurants closing shop as owners struggle to pay costs while revenues dip close to zero.

For those who have managed to hold the fort, light may be at the end of the tunnel.

The F&B sector should see some life once the government gradually reopens the economy and allows dine-in.

In a rare move of expanding aggressively while times are that bad, Dolphin International Bhd is looking to expand its Uncle Don outlets via a new express concept.

For those unfamiliar, Dolphin is the defacto listed company for dining restaurant chain Uncle Don.

Within Dolphin, it owns 4 Uncle Don outlets. 

Currently, there are about 29 Uncle Don outlets in total in Malaysia, with four more to be opened.

The Ready To Eat Segment

Dolphin is looking to enter the ready-to-eat convenient segment. Whats that? Think of franchise sandwich and coffee shop Pret A Manger in Europe, but with an Asian twist.

You want a quick lunch, you run into a Pret, and get your lunch within 10 minutes.

In Malaysia, ready meals are generally sold in grocery retail stores, convenience stores and online platforms.

There are no independent outlets selling only ready meals in the country. Nevertheless, increasingly, convenience stores in Malaysia have seating areas and facilities such as microwaves and hot water dispensers, allowing consumers to have the ready meal at the convenience store or on-the-go.

These convenience stores are also increasingly selling complementary on-the-go snacks, dessert and drinks to provide consumers with a more complete meal.

Examples of convenience stores which offer these products include 7-Eleven, Family Mart and MyNews.

In an announcement to Bursa on Aug 2, Dolphin said that to broaden the group’s revenue stream within the F&B service industry, it has decided to venture into the ready-to-eat convenient outlets through Uncle Don (UD) Express operations.

United Delight Sdn Bhd, a wholly-owned subsidiary of Dolphin, had on July 12, 2021 entered into a master licensing agreement with Uncle Don’s Restaurants Sdn Bhd (the Licensor) for a 5- year plus a renewable 5-year exclusive master license for the use and sub-license of the operating system developed by the Licensor for developing, opening and operating of F&B convenience concept stores under the trademark “UD Express”.

Such UD Express outlets shall sell ready-to-eat convenient F&B within Malaysia.

For this purpose, the group is looking to raise some RM24.17mil via a private placement. This will involve the issuance of 335.67 million shares or 36% of its total share capital.

The proposed private placement will enable the Group to set up approximately 18 UD Express outlets within 42 months from the date the proceeds is raised from the placement.

That’s not all though. The Group intends to expand up to 40 UD Express outlets in Malaysia within the next 5 years.

The company expects the UD Express operations to contribute positively to the Group’s future earnings.

As it is, Dolphin currently has 935.75 million shares which make up its share capital of RM65.77mil.

The major shareholder of Dolphin is Asia Poly Holdings Bhd with a 15.06% stake.

The man behind both Asia Poly and Dolphin is Datuk Yeo Boon Leong. Yeo is a major shareholder and executive chairman of Asia Poly Holdings Bhd.

Yeo also owns an indirect effective shareholding interest of 5% in the licensor of UD Express.

Yeo has been seen as an emerging business mover since Asia Poly, a provider of acrylics products, started growing rapidly in 2020.

For further details, below is the breakdown of the RM24.17mil Dolphin is looking to utilise from the private placement:

1. Working capital for Uncle Don’s express outlets  - RM5mil within 42 months
2. General working capital - RM2.59mil within 24 months
3. Set up cost for UD Express outlets - RM9.98mil within 42 months
4. Repayment of borrowings - RM3mil within 6 months
5. Future expansion/acquisition for F&B business -  RM3mil within 24 months
6. Estimated expenses for placement - RM600,000 within 1 month

For now, the group will have to wait for approval from Bursa Malaysia for its proposed private placement.

In other developments, the group also intends to set up a new Uncle Don’s outlet in Batu Pahat with the proceeds raised from its private placement announced on Jan 26, 2021.

This Batu Pahat outlet has yet to be set up due to the restrictions imposed by the Malaysian Government for the COVID-19 pandemic.

In addition, United Distribution Sdn Bhd, a wholly-owned subsidiary of Dolphin was set up to undertake the distribution of Uncle Don’s brand of chili sauce and tomato sauce.

United Distribution had on Jan 5, 2021 accepted the letter of award from Uncle Don’s Manufacturing Sdn Bhd for the exclusive distributorship rights in relation to the distribution of Uncle Don’s brand of chili sauce and tomato sauce.

Thus, United Distribution is now selling the chilli and tomato sauces to ALL of its 30 Uncle Don outlets, besides selected retailers.

This also means additional source of income for Dolphin.

Perhaps now could be a very interesting time to relook F&B businesses.