Balai Ni Fruitas response to write-up on the reallocation of IPO proceeds

On Tuesday, I wrote about Balai Ni Fruitas [BALAI 0.41, up 1.2%; 8% avgVol] and the BALAI board’s reallocation of IPO proceeds to commissary construction [MB link], away from store network expansion. In the write-up, I asked whether the “avoidance of debt and interest expense outweigh the potential topline growth of the company through building new locations”, and noted that it seemed as though BALAI had not made its case to shareholders that de-prioritization of store expansion was the right course of action. Interestingly, BALAI’s Investor Relations team reached out after that story was posted to offer additional background for the reallocation. According to BALAI, it was able to deliver a strong sales performance by using the “distribution network of its sister companies,” by “boosting delivery and 3rd party aggregator sales”, and by “tapping other distribution channels” like Gaisano and Metro Supermarkets branches in Cebu. BALAI said that this reduced the need for BALAI to expand the store network quickly. In addition, BALAI now believes that additional locations can be financed in smaller tranches “either through IPO proceeds and internal cash”, and that this has allowed the company to reallocate proceeds “towards increasing production capacity in Metro Manila and Cebu”. BALAI expects this to “translate to even faster revenue growth in the long-term.”

MB bottom-line: Credit to BALAI for addressing the questions that I posed. I think our market is strengthened by this kind of candid self-analysis. As I mentioned in my post, though, I wish that BALAI had made this specific case to investors on its own accord when the reallocation was made, or expressly by BALAI management in its quarterly reports. For example, the Management’s Discussion section of BALAI’s Q3/23 Quarterly Report credited “expansion of Balai Pandesal stores and the stronger performance of the stores” for the 65.3% y/y increase in sales, and credited “business expansion and continued same-store sales growth” for the 77% y/y increase in net income. Largely the same story for BALAI’s Q2/23 report. I think it's fantastic if the Fruitas Group’s network, platform, and alternative sales channels made