December 02, 2014

MAX prices follow-on offering at P17.75

In a briefing to investors last Thursday, MAXS Group Inc finally priced its follow-on offering at P17.75/sh. The company plans to raise P3.5b by issuing 197m shares which is composed of 28m primary shares and 169 treasury shares. This will bring total outstanding shares to 780m. Approximately P3b will be used to pay down debt used to acquire the Pancake House group with the remaining 500m to be used for store expansion and expansion of its commissaries.

As of 1H14, the company has a store network of 525 stores including Pancake House group stores and a net income of P39m. The company mentioned, however, that this included a lot of one-time re-organizational costs and would have had a net income of P167m if these items were excluded. The company likewise announced that it plans to end the year with a store network of 566 stores, +10% YoY and add another 68 new stores in 2015.

Our take: At P17.75, Maxs will have a market capitalization of P13.84b which we estimate would put it at a 2015E P/E of 23x assuming it is able to execute well on its planned integration of the Pancake House group into its own operations, and successfully complete its expansion plan.

While the company has allocated P3b of its IPO proceeds to pay down debt used to acquire the Pancake House group, MAX's net gearing ratio would still stand at about 1.21x post offering. This would limit the company’s ability to raise money through debt in the future should the need arise. – WealthSec