Balai Ni Fruitas applies to SEC for P309-M March IPO
Balai Ni Fruitas [BALAI 0.75 pre-SEC] 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 P309 million through the sale of 325 million primary and 87 million secondary common shares at P0.75/share. The deal is underwritten by First Metro Investment Corp., 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 P220 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 P100,000 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 P13.9 million, which was down to P4.5 million in 2018, up to P7 million in 2019, and down to a P1 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 P2.3 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.
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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 P1.82/share, and down 27% from its 2019 IPO price of P1.68/share. It’s only up 17% from the very depths of the 2020 COVID crash.
(Editor's Note, Feb. 23, 2022: This article was amended to indicate that First Metro Investment Corporation – not FirstMetro Securities – has been appointed as the issue manager, bookrunner and underwriter for the IPO)
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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