Spackman Entertainment Group ("SEG" or the "Company") is placing 69.44m placements shares at 26 cents each for a listing on Catalist. 50m New Shares and 19.44m vendor shares will be offered. There is no public tranche available. The IPO will close on 18 July 2014 at 12pm.
The Company is mainly involved in the production of films as well as distribution of foreign films in Korea. This is quite an interesting company to analyze given that this is the first time there is a film production house to be listed here.
Not sure if you have watched any of the movies above, but i will try to catch one when i am on my next business trip... Cold eyes is one of the top 10 movies in Korea for 2013 that is produced by the Company. If you look at the top 10 list, no.3 and no.10 were produced by the Company but somehow, i had trouble trying to see how the revenue for Snowpiercer is flowing into the Company as it wasn't so evident in the 2013 financials.
I will not type it out but "cut and paste" from the prospectus for your information. Basically if you cut all through hay stack, you are basically investing in people. This is a production house with about 35 full time employees. It is difficult to place a value on the brains of this creative bunch but you will have to hope that the good ones will stay with the Company and not be poached away.
Majority of the revenue for 2013 was from Cold Eyes. It is difficult to predict if movies will be a success or a flop but perhaps that is the reason why they are able to launch the IPO at a supposedly "rich valuation" now as they have just launched a new movie "Confessions". They better launch the IPO before the box office results is out?
The Company has a short operating history with EPS of 0.78 cents for FY2013. If we use an exchange rate of 1.25 and a post IPO shares of 395.31m shares, the EPS will be 0.78 x 1.25 x 344.54/395.31 = 0.85 Singapore cents. That will translate into a listing PER of 30.6x. The market cap post IPO is around S$102.78 million.
According to the prospectus, the NAV per share is 2.6 US cents x 1.25 x 344.54/395.31 = 2.83 cents. The IPO price is at a huge premium of 9x over its NAV.
Use of proceeds
Most of the IPO proceeds will be used to invest in films production and for general working purposes.
What i like about the Company
- Very unique company. Finally we get one to list here following the popular K-wave!
- If the directors are creative and can create blockbuster movies or k pop group, then the Company will do very well.
- Film production is always a risk as any major flops can be financially draining to the firm, not to mention the risk of the image being tarnished.
- Film production can be highly profitable or highly risky. It's a binary kind of product.
- Creative people usually have no concerns over costs and this may result in costs overrun of films and they can leave anytime and start a new production house.
- The industry is pretty fragmented but highly competitive given vibrant market.
- Piracy of films will reduce the royalties and fees received by the firm.
- There are a lot of pre-ipo investors in the Company and they got in at between 6-16 cents.
- The two key directors in aggregate (including the % via Spackman Equities Group) only controls about 15.6% of the Company. I think that is a tad too low to retain talents.
- Huge 78.5% premium to its NAV
- Not sure for how long the K-wave will last
I understand from source that the demand for the IPO shares have been pretty good so i am expecting to see some fireworks. The lack of public tranche has been fairly disappointing for our K-wave fans in Singapore ^_^ . If you ask me.... i will hesitate to invest in this for the longer term for the concerns i raised above.
For those who managed to receive some shares from the IPO placement, I will give it a 2 Chilli rating for the debut but it it just too difficult to predict how the future will look like for this firm at this juncture. It is a binary option and can go either way.
Happy stars gazing