Thursday, 25 November 2010

Amtek Engineering Ltd

Amtek Engineering Limited ("Amtek") is offering 200m vendor shares at $1.30 each subject to over-allotment option. 180m shares will be via placement and the rest for the public.  The offer will close on 29 Nov at 8am (an unusual timing from the 12pm) and commence trading on 1 Dec.


According to FinanceAsia article, Amtek downsized its IPO after weak institutional demand to allow for "greenshoe" option so that they can help stabilize the market upon listing. Amtek provides end-to-end design and manufacturing solutions for precision metal, plastic and rubber components and casing. The company was privatised in Aug 2007 by Standard Chartered Private Equity and CVC Asia at around $0.69 per share (apple-to-apple comparison) versus the listing price of $1.30.  


The company intends to pay up to 50% of its net profit after tax as dividend and this will be its dividend policy. Considering that the majority of the shareholders are PE firms, this is not surprising.


Revenue for the year ended 30 June 2010 is US$638m and net profit after tax is US$21.682m. The EPS was US 4 cents and that is approximately Singapore 5.16 cents. That translate into a historical listing PER of 25! (wow!). The NAV per share is only $0.29 versus its listing price of $1.30.  That translate into a 4.5x price to book.


Venture Manufacturing had sales of S$3.4 billion and net profit of S$143.7m and is trading at 17.1x historical PE and 1.3x Price to Book. Based on 2010F earnings, Venture is trading at 13.4x PE and 1.3x Price to Book. Venture's EBITDA for 2010F is approximately S$246.6m versus Amtek's $107m for year ended 30 June 2010. In other words, Venture might be a cheaper and better alternative for investors to consider, although my caveat is that i have no insight into Amtek's forward performance for FY2010/11. Interestingly, the CEO of Amtek, Daniel Yeong, was previously the CEO of GES which was subsequently sold to Venture. You can say that he is a true blue entrepreneur and this is his "second pot" of gold even though he has no bachelor 'degree'. Daniel was brought into Amtek after the PE firms did the buy-out, i am sure that over the years, he has managed to restructure Amtek into a better firm. 


Unfortunately, the issue is a bit overpriced at $1.30 (and that is even below the original indicative range). I would give it a 1 chili rating and "avoid" at its IPO price. The fact that vendors are 'cashing out' is no added consolation.

7 comments:

isaac said...

Hi, im new to stocks, but when there are many vendor shares up for allotment, like in Amtek's case, is it a bad sign? Is it because their own directors and employees are divesting themselves of their own company?

thanks!

2Y Capital said...

not really. It depends on whether the company needs to 'raise' funds for expansion or purely to sell to get listed. In this case, the company do not really need the $ and the fact that it is vendor because the entire ownership was held by private equity buyers. They privatised, restructure and relist the company again.

isaac said...

hi
I saw on the prospectus that last yr, they paid the shareholders $100 Mil in dividends, even though the performance was flat since it was de-listed!

is that a big red flag?

2Y Capital said...

Issac,

It is not uncommon for PE shareholders to 'milk'the cow if the company is generating a lot of free cash flows. After all, this is a buy out deal and the PE players need to incur interest costs to make this investment. As long as the underlying investment is able to generate the cash flow to cover their expenses, they will ask for dividends to be paid.

ming said...

Hi

Would you like to link blogs with me? Would like to learn more about ipo investment and analysis from an ipo expert like you. :)

cheers
ming

p.s. i got my first share from an ipo. haha

Anonymous said...

Hi,
I have a question regarding the dividend policy of Amtek Engineering? I need further details about it, does somebody can give me a clue were to find it?
Thank you very much in advance,
greetings

2Y Capital said...

For newly listed companies, it will also be in the "dividend policy section" of the Listing Prospectus.

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