Wednesday, 27 February 2013

Mapletree Greater China Commercial Trust (Final pricing)

Mapletree Greater China Commercial Trust ("MGCCT") finalized its IPO pricing at the top end of the indicative range of 93c. This is due to overwhelming demand for its units by the institutions. The IPO prospectus is here and the announcement by Mapletree is here.

There is a strong support from 11 Cornerstone Investors and the book was well covered. The Public Offer offering of 265,357,000 Units (less 50,304,000 reserved) will open on 9am 28 Feb 2013 and end on 5 March 2013 12pm.

Comparable

The yield is viewed to be quite attractive versus its key comparable, Link Reit (SEHK:823), which is trading at a yield of about 3.5% today. Hong Kong-listed Link Reit owns and operates a large number of retail assets formerly owned by the Hong Kong government and is viewed as a key comp.

Assuming MGCCT trades at that level, it will imply a good upside of $1.49!

However, I will not be so "greedy" but believe that given the quality of its assets, it deserves a good debut and Link REIT investors should "switch out" of Link and re-invest into MGCCT. A fair value yield of 4.5%-5% will imply a fair trading range of 104 to 116 cents. Having said that, it will be Singapore's largest IPO in 2 years thus I think the upside may be limited by the large float. A debut above $1 will be a good performance for me.

Sunday, 17 February 2013

Mapletree Greater China Commercial Trust ("MGCCT")

MGCCT is established as a REIT with the investment objective of investing in income-producing real estatae in Greater China. The real estate will be used predominantly for retail and office purposes. The draft prospectus is here.

MGCCT is offering 776.636m units for the public offer, subject to over-allotment option. The indicative price range will be between 88c to 93c. The placement tranche is 511.279m units and the balance 265.357m units for the public. The float is huge and will suck up quite a bit of liquidity in the market. There should be enough to 'satisfy' demand, so don't expect too much fireworks on the IPO debut. Up to 79.851m may be "overalloted" if the demand is overwhelming and for price stablization purpose. The market cap at IPO price will be $4.41 billion.

The tentative dates are as follows:
28 Feb 9am - Launch of Public Offer
5 March 12pm - Public Offer closes.
6 March - Balloting
7 March 2pm - Commence trading.

The initial portfolio will consist of Festival Walk in Hong Kong and Gateway Plaza in Beijing.


Accordingly to the prospectus, Festival Walk is a premier retail mall in Hong Kong, is a retail and lifestyle destination of choice, has a attractive and large trade area and growing China tourist patronage. You may want to confirm that with your friends in Hong Kong. Readers who have been to this mall may want to drop a note to confirm if you agree with the prospectus.

Similarly, the prospectus mentioned that Gateway Plaza is strategically located premier Grade A office building and there is a scarcity of comparable properties. Gateway currently enjoys 98% occupancy and counts a number of MNCs as its tenants.

The portfolio has a diversified and high quality tenant base and the breakdown is below.


Cornerstone Investors


Nothing unusual about the cornerstone investors but probably they can help determine the final price at which the units are being offered. I hope it will lean towards 88c to leave some meat on the table and for "goodwill" since this is post Chinese New Year's first Snake IPO and we need to get off to a good start! ^_^  

Yield


At 93c per unit, the Manager projects a yield of between 5.6% for FY2013/14 and 6.1% for FY2014/15. At 88c per unit, the yield will improve to 6.0% and 6.5% respectively.

The first distribution will be for income received from listing date till 30 Sep 2013 and will be paid before 31 Dec 2013. The distribution will be paid semi-annually.

Unaudited Proforma Balance Sheet and financial forecast

Based on the pro-forma balance sheet and based on the final offer price of 93 c per unit, the price to book ratio is around be around 1.02x. The projected earnings and distribution is below for your reference.


Based on the projected figures above, the EPS is approximately 4c FY2013/14 and 4.2c for FY2014/15. The PE based on that will be around 23x based on the IPO price of 93c for FY2013/14. The implied yield will be 5.6% and 6.2% respectively. From a PE perspective, the IPO is expensive but from a price to book perspective, it is transacted at "fair value".  

What I like about the REIT
  • Prime properties in Hong Kong and Beijing.
  • Good track record of Mapletree. It's two other REITs, Mapletree Commerical and Mapletree Industrial have performed very well since their IPO debut. The links is to my IPO write ups last time.
Possible Concerns
  • Depreciation of HKD against SGD since it is pegged to the USD.
  • Buying over the assets at a high.
Fair Value

I think the closest competitor listed here should be Capital Retail China. (Perennial Retail China Trust is not so appropriate because it is more developmental in nature). At a listed price of $1.85, CapitaRetailChina is trading at a implied yield of 5.16%, PE of 9.44x and a price to book of around 1.42x. Using this metrics, lets try to project the possible trading range of Mapletree Greater China Commercial Trust.

PE ratio may not be a right metric as this is primarily a yield play. In this regard, i will probably use the implied yield of 5.16% as the primary benchmark and price to book of 1.42x as the secondary benchmark.

If it trades towards the implied yield of 5% to 6% --> the fair value of MGCCT will be between $0.88 to $1.05
If it trades towards a price to book of between 1.2x to 1.4x --> the fair value of MGCCT will be between $1.09 to $1.28.

Given the positive sentiments, the "decent" yield of 5.6%, i will give it a 2 Chillis Rating. This is a longer term yield play, not mean for short term punt as the float is big and i believe all interested investors will be allocated some shares. Perhaps some allocation to the SRS portfolio may be suitable. 

My wish list will be for the IPO to be priced at 88c instead of 93c.

Saturday, 9 February 2013

Happy Chinese New Year



A Happy Chinese New Year to those who celebrate it. Best wishes for abundant good wealth and health. 

A Happy Holidays for those who don't celebrate :)

It is interesting to note that Snake has never been the most popular creature with mankind since ancient time, be it from the biblical times to the main characters from Slytherin in Harry Potter to many Hollywood movies such as Anaconda or Snakes in the Plane. Even Chinese Idioms are "very negative" when it comes to snakes, such as 蛇鼠一窝, 画蛇添足,蛇蝎为心. 

Will the year of the Snake be a good year for the stock market as well? We shall check back again next year. 

STI was 3,270.30 on Chinese New Year's eve, 8 Feb 2013. Let's see how it performs in the next 12 years. My guess is that it will slithers sideways with many highs and lows, creating many opportunities. Catch it well and you will slither your way to riches, catch it at the wrong end and be bitten by the snake. ^_^

Wednesday, 6 February 2013

Balloting Results - Overseas Education LImited

The results for Overseas Education Limited is out.


It is very difficult to get.  Those who applied for 100 lots will have a probability of 24% and get only 5 lots.


Placement Tranche


There is quite a bit of institutional demand.... The IPO will probably start with a big pop tomorrow. 

Bee tang for the lucky ones :) Both my applications not successful... :(


Sunday, 3 February 2013

Overseas Education Limited


Overseas Education Limited ("OEL" or the "Company") is offering 125m New Shares for a main board listing on SGX, of which 3.75m shares will be for the public offer and the balance 121.25m shares via placement. The shares will be  offered at $0.48 each. The prospectus is here. The offer will close on 5 Feb at 12pm and starts trading on 7 Feb 2013. The market cap based on the IPO price will be around S$187.4 million.

OEL is a private foreign system school in Singapore, offering the K-12 IB curriculum for children aged 3 and 18 years. OEL is one of the top 3 foreign system schools in Singapore and according to the prospectus, has a 10.3% market share here. The Company currently has a staff strength of 501 and 3,753 students. The Company is running at almost full capacity and is in discussions with various government agencies on the allocation for a permanent site for construction of a new school campus and all of the net IPO proceeds will be used to build this new school.

The purpose for the IPO is to raise funds for new campus, enhance its image, tap capital markets and provide everyone with the opportunity to participate in the growth of the Company. The bulk of the proceeds of $56m raised is for building a new school campus. I like the fact that the founders are not cashing out and only new shares are issued.

Financial results


Revenue has grown from S$75m in FY2009 to $89m in FY 2011. For the first half of 2012, the Company made a revenue of $46m and a net profit of $9.4m.

The graph below shows the profitability in the last 3 years, including first half of 2012.

Based on the enlarged share capital of 390.36m shares, the EPS for FY2011 was Singapore 4.99 cents and that translate into a historical listing PER of around 9.62x

The first half net profit margin seemed to have declined to 20.2% and the EPS based on the enlarged share capital is Singapore 2.4c. Assuming FY2012 is a "stagnant year" as the revenue grow by 5% but the net margin drops to 20.2%, the projected FY2012 earnings will be around S$18.95m and the EPS will be approximately Singapore 4.85 cents. This translate into a PER of around 9.9x

Dividend Policy

After reading prospectus for the last many years, it is very interesting to note that the Company has stated in its prospectus that it intends to pay out at least 50% of its net profit after tax for each financial year. This is a pretty strong statement to make. Hence for investors who are keen to receive a dividend income every year, this stock will be suitable. The Company has demonstrated its ability to pay dividends by paying almost half of its net profit after tax for the last 3 years. So you can see that this is a high cash flow generating business.

Assuming EPS for FY2012 is Singapore 4.85 cents, the DPS will be around Singapore 2.425 cents and that translate into a yield of around 5.05%, which in my view, is pretty respectable.

Over-allotment

The underwriter is able to over-allot if the demand is hot by up to 25m shares. The shares will initially be used for price stabilization post IPO and thereafter, if not utilized for stabilization, the proceeds will go to the Company and be used for the new premises.

Shareholders

The company is jointly owned by Mr. David Perry (34.7%) and Ms. Irene Wong (33.3%) with the balance held by the public (32%).

Competitors


The Company is ranked no.3 in Singapore in terms of "revenue" generated. 

What I like about the Company
  • High recurring income as students are "locked-in" for the long term from junior to senior school
  • I always like the education Sector and the simple business model. The IB program is getting more recognized with some of our branded mainstream schools offering them as well.
  • Target the expatriates community which are usually less price sensitive as part of the fees are subsidized by the companies which they worked for. 
  • Market for FSS continues to grow at around 8% until 2016. (According to a research in the prospectus).
The Concerns
  • Macro and government policies driving the expatriates community away from Singapore (or if Singapore loses its attractiveness).
  • Competition from new schools offering the IB program at lower fees.
  • Revenue and profit growth is limited unless the Company is able to find and build a new premises as the capacity for students is reached.
  • Management succession plans (Co-founders are aged 71 and 58 respectively). The daughter of Ms. Irene Wong is being groomed to takeover and is currently a management trainee. 
  • Bad local "experiences" looking at how education counters such as Raffles Education, Informatics and Oriental Century have performed post IPO.
Fair Value and Ratings

Raffles Education has been making losses for FY2011/12 due to its ill-fated attempt to set up a school in China. It will probably make a small gain for FY2012/13 and is trading at a forecasted PE multiple of 38x for FY2012/13. Informatics is even more expensive, trading at 63x PE. These two have been very poor barometers of our education stocks in Singapore (even though Raffles Education used to be a darling here). I definitely hope OEL will prove to be different.

Assuming OEL trades at a PE valuation of 10-15x, which in my opinion is fair, the trading range will be between 49 cents to 73 cents. Given that OEL is highly profitable with a well-run operations and attractive dividend payout ratio, i would give a 3 Chilli Rating and consider it as a candidate to add to my SRS portfolio. Hoot ah.

Happy IPOing. If you make some money but don't know how to spend it, you may check out the "sponsored video" on the top right hand corner of my blog. haha


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