Sunday, 30 October 2016

HC Surgical Specialists Limited



HC Surgical Specialists Limited ("HC Surgical" or "the Company") is offering 30m placement shares at $0.27 each for a listing on Catalist and there is no public tranche. The offer will close on 1 Nov 2016 at 12pm and commence trading on 3 Nov 2016 at 9am. The market cap is S$39.5m based on the IPO price.

The Company is a medical services group primarily engaged in the provision of endoscopic procedures, including gastroscopies, colonscopies and colorectal procedures in Singapore. Actually you can literally "see what they do" from the Company's logo isn't it? I haven't seen a Company that adopts a digestive system as its logo before... imagine if it is a men's health clinic listing next? lol.

Shareholders

HC Surgical is controlled by both Dr. Heah Sieu Min (43.73%) and Dr. Chia Kok Hoong (23.75%) post the issuance.

Holding Structure


Financial Performance


Assuming the service agreement is in place for FY2016 and excluding the listing expenses, the adjusted profit and EPS based on the post IPO shares will be $2.93m and 2 cents respectively. This translate into a listing PER of around 13.5x. 

The Company also provided a pro-forma statement given the restructuring that took place and under that scenario, EPS improved by 21%. Assuming EPS for FY2016 improved to Singapore 2.42 cents, the listing PER will be around 11x


Use of proceeds


Dividends

The Company intends to pay at least 70% of its profit after tax as dividends for FY2017, FY2018 and FY2019. Assuming EPS is 2 cents, it translates into a yield of 5.1%, which is very decent.

What I like about the Company
  • Listing at an attractive valuation vis-a-vis its peers
  • Strong alignment of interest between founders and investors
  • Attractive healthcare sector that is still "in favor" on SGX
  • Public shares are probably placed to friends and family and tightly controlled
  • Good doctors - Both received many "service awards" and Dr. Chia, in particular, was awarded the Courage Fund Award for SARS cases in 2003
  • The two founding doctors didn't pay themselves huge salary but have in place a profit sharing structure that is tied to the profit generated
  • Stable cash flow generative business with no debt
  • Dividend paying company 
Some of my concerns
  • Key man risk - what if the two surgeons are no longer around? Can the brand continue to survive without them?
  • Too much control held by 2 men. While this is fine for the short run (and unless they are looking for a trade sale at a much higher valuation), it may not be healthy for the long run
  • There will be many post IPO acquisitions as it is the fastest way to grow, execution will be key in integrating good surgeons into the system and failure to retain these talents will disrupt the business. It is probably not easy to manage a team of high ego surgeons? 
  • Singapore market is quite small and competitive unless they expand overseas. While the Company has signed a MOU with Vietnam, it is not easy to remit money "out of Vietnam" 
  • Too much focus on stomach and colon? Hopefully their "logo" will not restrict their expansion of services into other areas.
  • It is quite rare to see that there are no lawyers or accountants on the board, they may want to add more diversity to its board
Valuation

Singapore O&G launched its IPO back in 30 May 2015 and has done very well since. The "3 chillis" write up is here.  It is currently trading at FY2016 PE of 22x and FY2017 PE of 18.7x. The table is summarized below. I didn't even use Raffles Medical Group or Q&M as they are now trading at 33x and 38x PE respectively.

HC Surgical is attractively priced vis-a-vis its peers. 

Assuming EPS grow by 20% in FY2017 (i am guessing), it will translate into a EPS of 2.4 cents. 

Based on the PE multiple of 20x-25x (being conservatively here), it would translate into a fair value range of 48 cents to 60 cents

This Company is attractively priced and managed by doctors with a heart. They could have definitely asked for a higher valuation. It's a 3 chillis for me.



Sunday, 21 August 2016

AGV Group Limited



AGV Group Limited ("AGV Group" or the "Company") is offering 26.92m shares via placement at $0.22 each, comprising 21.82m new shares and 5.1m vendor shares for a listing on Catalist. The offer will close on 24 August 2016 at 12pm. The market cap based on the IPO price is S$27.7m.

I don't intend to spend too much time on this IPO as all the shares are placed via placement.

The Company is one of the leading providers of hot dip galvanizing services in Singapore to steel and iron fabrication industries with a well diversified client base.

According to the prospectus, the competitive strengths are as follows:
  • market quality services at competitive prices
  • attuned to customers' needs
  • experienced and management team
  • established business relationships and extensive networks
Financial Results


While the revenue is growing steadily, this is still a small cap company with revenue of less than $20m. The first half profit for FY2016 is actually lower than that of FY2015.

Based on the EPS (post-placement share cap) of 1.78 and assuming the service agreement is in place, the IPO is priced at a PER of 16.6x. This is not exactly "value for money" in Singapore context. 

Some of my concerns include:
  • This is a small cap company with revenue less than $20m and in a competitive industry
  • Vendors are cashing out at the IPO
  • There is a long list of pre-ipo investors who invested at around 8.8 cents who may want to exit
  • The listing valuation at 16x historical is not exactly compelling
  • The current IPO sentiments and climate is weak
For the above reasons and given there is no public tranche, i will give it a zero rating.

Happy IPOing

Wednesday, 3 August 2016

China Jinjiang Environment - Balloting Results

The balloting results is out for China Jinjiang but CICC is probably not so "experienced" with our local regulations and the launch is delayed till 2pm. There were any announcements and the following were sourced from the Straits Times. 


Everyone who subscribed for the public tranche will be allotted some shares. The bulk goes to investors who subscribed for 50,000 shares and they will be allotted 38,000 shares. 


The substantial placement holders are listed above. You decide for yourself if these are "good" names. 

There will be some stabilization exercise due to the over-allotment. Good luck to those have the shares. 

Subsequent to its advertisement, it made the following changes and delayed the launch from 9am to 2pm...



Happy IPOing 




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