Thursday, 14 August 2008

Tritech Group Limited



Tritech Group Limited ("Company") is offering 36m shares at 20 cents per share (30m New shares and 6m Vendor shares) for sale at IPO of which 35m shares will be via placement and 1m shares through the public tranche. The Company is to be listed on Catalist (not sure why it is not going for the mainboard but i believe it is due to a series of litigation suits mentioned on page 141 of the prospectus which obtaining a mainboard clearance will take a much longer time, although it seemed that the Company has all the insurance in place to limit the losses)...and the IPO will close on 19 Aug 2008 at 12pm.

The Company is in the 'construction-related' sector in the ground and structural engineering services. The revenue for FY 2008 is S$31.3m and the net profit is S$7.3m. The NTA post-ipo is 9.17 cents and the EPS (post-ipo and post service agreement) for FY2008 is 3.39 cents and based on the IPO price of 20 cents, it is priced at 5.9x historical. The market cap is S$39.2 million.

The Company will be a tightly held company with 81.63% of its shares held by Tritech International and Tritech International is in turn held by 4 individuals and one company. As mentioned on page 141, there are a series of litigation law suits which investors should be aware of as they may have an impact on the Company (although any significant losses seemed to be covered by the insurers).

While the Company has been very profitable in FY2008, personally, I dislike the construction sector and continue to avoid this sector as it is cyclical in nature and 'difficult' to estimate the future earnings unless we have the visibility of the contracts. Assuming a 20% growth in EPS, the EPS for FY2009 will be 4.068 cents. Based on valuation of 6x, the fair value will be around 24 cents but investors will have to give a discount to this company for its low market cap and liquidity. I will avoid this counter under such negative IPO sentiments and give it a 1-chilli rating.

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