Choo Chiang Holdings ("CCH" or the "Company") is offering 33.28m shares at $0.35 each. 1m shares will be by public offer and the rest via placement. The offer will close on 27 July at 12pm and starts trading on 29 July. The market cap will be around S$72.8m
The Company has a retail presence in Singapore of over 20 years and is a leading retailer and distributor of electrical products and accessories in Singapore. Some of these products include 3rd party and proprietary brands and they carry eight product categories.
The Company also owns 13 investment properties and 4 retail properties of which 9 of the investment properties are rented out to 3 parties.
The EPS as of FY2014 is around Singapore 2.66 cents and that translate into a PER of 13.1x
The revenue is stagnant and margins are declining.
According to the prospectus, these are the investment merits
- Wide retail network located across Singapore
- One stop provider of products and accessories
- Long term relationship with suppliers
- Established track record
The Company intends to expand its operations to overseas but i believe it will be challenging.
The Company has a simple shareholding structure. Post IPO, the public will hold 16%.
What i like about the Company
- It is a stable business and the Company has been paying out dividends
- The Company intends to pay out 30% of its net profits as dividends for FY2015 and FY2016. If EPS remained about the same, the yield will be around 2% but i am not privy to current year performance.
- The investment properties will help provide some recurring income.
Some of my concerns
- This is a "cashing out" exercise for the vendors. The Company will not received any proceeds.
- The Company has a negative cash flow for FY2014 and from the way it looks, it probably leverage up its balance sheet and pay out a bumper dividend of $10.8m prior to the listing.
- I don't like the fact that a partner of the previous audit firm is now holding a 14% and was the auditor from 1991 to 2015. Potential conflict of interest?
- It's a business in decline. The margins are dropping and middle man are gradually being "cut off" globally.
- It is just a distributor with Singapore-centric business. It will not be easy to expand beyond Singapore.
- It's a family business. Last count 14 employees who are related.
I will give this IPO a miss and a 1 Chilli rating. Buy only if you really like it. The business and its prospectus are not too exciting and not scalable beyond Singapore. It is also a cashing out exercise for the owners.
I would have given it a zero chilli had it kept all the shares for placement. This is to send a signal that all IPOs should include a public tranche ^_^