Saturday, 22 April 2017

Aoxin Q&M Dental Group Limited

Aoxin Q&M Dental Group Limited ("Aoxin" or the "Company") is placing out 57m Placement Shares at $0.20 each for a listing on Catalist. There is no public tranche. The IPO closes on 24 April 2017 at 12pm and will start trading on 26 April. The market cap post the Honour Subscription shares 372m is $74.4m.

Principal Business

The Company is one of the leading providers of private dental services and dental equipment and supplies in the Liaoning Province, Northern PRC.  The Company has 240 dental professionals (comprising 113 dentists and 127 dental surgery assistants) in 11 dental centres (4 dental hospitals and 7 polyclinics) in 4 different cities, namely Shenyang, Huludao, Panjin and Gaizhou.

There are two core business - provision of private dental services and distribution of dental equipment and supplies.

Financial Highlights

While it is good to see the revenue and profit growing strongly from FY2013 to FY2015, it started from a very low base. In addition, the revenue stagnated and profitability from continuing operations declined in the last 2 years 

According to the prospectus (page 80), assuming the service agreement is in place, the EPS will be 0.53 Singapore cents based on the pre-placement shares of 298m. This will drop to around 0.43 Singapore cents using the post placement shares of 372m after the Honour Subscription is completed. This translate into a whopping PER of 47x!

Using the 9M2016 pro forma financials presented above, it seemed like FY2016 is a tough year. I am not privy to the FY2016 results, hence assuming i pro-rate the FY2016 revenue and profit equally, revenue will come in at RMB 81,989m and profit will come in at RMB 6.512m, meaning that net profits has declined by 19% compared to FY2015.

Under this circumstances, the PER is going to escalate even higher to 55x, making this one of the most expensive IPO. The only "saving grace" is that the NAV per share of around ~$0.12 versus the IPO price of $0.20 is not as bad as i expected. At least it should help support the trading price should it fall to those levels.

Use of Proceeds

The IPO proceeds will be used to expand the business though acquisitions and for working capital.

What i like about the Company
  • On the macro side, rising middle income group in China will demand better quality dental care and this will help the Company
  • Get direct exposure to the dental healthcare sector in China. It may have small operations in Liaoning now but it is a good starting point 
  • Having a listed Company Q&M as major shareholder (44% stake), investors can be more comfortable about the corporate governance. The CFO of Q&M dental also sits on the board of Aoxin
  • Good to see Q&M 'rewarding its staff' by gifting the shares to its 628 employees via the "Honour" scheme

Some of my concerns
  • The pro forma financials includes "discontinued operations". I personally don't like such financial statements as it may not be so easy for a company to "discontinue" operations going forward. The Company is trying to "sell you the idea" that going forward, the discountinued operations will not longer affect the business.
  • The valuation is way too high, paying >50x PE for this business. While the sector is trading at such high multiples, in my view, there are better alternatives to invest in
  • Complicated arrangements and non compete agreements with Q&M (parent). Example among others, Aoxin is not able to compete in Southern PRC, including but not limited to Shanghai (page 128)

My chilli ratings

My ratings is probably not important since there is no public tranche. The current buoyant IPO market year to date (see table below) and the low absolute 20c pricing will provide near term support (assuming the placement was done well).

While i like the dental healthcare sector, i am really skeptical of the high valuation which this IPO was launched. Based on the forward PER, it is being listed at more than 50x PE! 

Enjoy the hay while the sun is out (hope they place to strong hands!) but it is a zero chilli rating for me valuation wise.

Happy Aoxing

Thursday, 6 April 2017

UnUsUaL Limited

Unusual Limited ("Unusual" or the "Company") offered 96.99m shares at $0.20 each via placement. There is no public tranche hence rendering my chilli ratings less meaningful. At the IPO price, the market cap is around S$128.6 million. 

The Company specialises in the production and promotion of large scale live events and concerts by renowned international artistes such as the recent Jacky Cheung world tour concert in Singapore.

Financial Statements

The Company generated less revenue for 9M2016 but was able to maintain its profitability by improving the net margins from 16% to 24%. In this regard, for the 9M 2016 period, it actually showed a 39.5% improvement period on period to 0.60 Singapore cents on a fully diluted basis. The Company is likely to perform better for FY2016 since it has yet to factor in the last 3 months performances.

Assuming it ended the year at $4.5m (i am guessing), the EPS is around 0.70 Singapore cents. That translate into PER of around 28.6x


Public investors will hold about 15% of the Company with mm2, a listed company, holding 41.9% of Unusual. The original founders, Leslie and Jonny Ong will hold about 40.3% of Unusual. In addition, SPH AsiaOne (one of the pre-ipo investors) may also subscribe up to 25.636m Placement Shares. In other words, the placement is tightly controlled. 

Use of Proceeds

The proceeds will be mainly used for promotion and production projects and expanding the group's business.

What i like about the Company
  • Strong hands. Looking at how mm2 rose from a small cap Company to a company currently valued at >$500m market cap and trading at 43x PE, you will probably wonder if the investors backing mm2 Asia are pretty "unusual" as well. With the same backers behind Unusual Limited as well, i can probably guess that the Company is pretty "well supported". The shares will be tightly controlled post IPO, somewhat similar to mm2 Asia.
  • The price paid by the pre IPO investors of 17 cents are not too far from the IPO price.
  • Looking at the milestone and concerts hosted, the Company probably "cornered" the concert market in Singapore, which is probably right. lol. They even claimed in the Competition section that "there are no major competitors which match our Group's profile in the industry".
  • There is probably much synergy with mm2 Asia, leveraging off each other's network and a demand for "one stop solution" for artistes to perform in the  ASEAN region
  • Lack of competitors in Singapore
Some of my concerns
  • This is definitely not a "value buy" to me. The Company is being listed at >30x historical PER
  • Key man risk. This is a "people" business in Asia. You will need the founders and management to run the business with integrity as artistes tend to be quite "sticky". While it is good for the Company if the artistes are "sticky", it also mean that the key man risk is pretty real. In other words, the huge premium of 15.91 cents you pay over the NAV of 4.09 cents is to make sure the founders and management stay together. In the event that they quarrel and split, this premium will evaporate as well. Having said that, the brothers have been working together for a long time, the question then is whether they can work well with majority owner Melvin Ang from mm2 Asia
  • The cash in the Company was dividend out to the founders and ironically, there is no clear dividend policy announced
  • The staging of concerts depended greatly on the popularity of the artistes as well as the general state of economy. While Singaporeans are probably suckers (including myself) to pay high prices for concerts, there is a limit to how much more they can charge for the tickets
  • While it is a stable business, I am not sure how scalable it is in this region as demonstrated by the space in which it is operating. 
Chilli ratings

My chilli rating is not meaningful since there is no public tranche. If i have to hazard a guess, it will debut well given the strong hands and "tight supply" and there are  not many shares available for the public. However, valuation-wise, i will give it a one chilli rating for reasons mentioned above. 

Happy IPO Singing! 

Friday, 17 March 2017

Kimly Limited - Balloting Results

Kimly announced that its IPO of 173.8m shares were collectively 8.3x subscribed on an overall basis. My back of envelope computation showed that the public tranche was 336x subscribed.

For investors who applied for the public tranche, the balloting table is presented below:

Investors who applied for 100k shares will have a 2:25 chance of getting 6,000 shares.

The insiders, including the relatives of the founders and Heliconia (via Vanda 1 Pte Ltd) supported the IPO strongly with Vanda 1 subscribing for an additional 27.7m shares in addition to the share it held currently. 

"We are very encouraged by the positive response to our IPO from the investors, and we believe their warm reception underscores the strength of Kimly's business fundamentals and our future growth potential. Going 
forward, we will be focusing on using technology to increase our operational efficiencies as well as to cater to the increasing number of tech-savvy customers, such as providing an online platform to order our food
products."  - Mr Vincent Chia (谢书强), Executive Director of Kimly

 Good luck to those who managed to get the shares! Huat ah..


Thursday, 9 March 2017

Kimly Limited

Kimly Limited ("Kimly" or the "Company") is offering 173.8m shares at $0.25 each for which 170m shares is via placement and 3.8m shares via a public offering for a listing on Catalist. The offer will close on 16 March 2017 at 12pm and trading will start on 20 March 2017. The market cap based on the IPO price is S$288.7m.

Principal Activities

Kimly is the largest traditional coffee shop operator in Singapore. It operates and manages coffee shops under the "Kimly" brand and food courts under the "foodclique" brand. It has 64 food outlets of which 56 are coffee shops, 3 industrial canteens and 5 food courts in tertiary institutions. The 64 food outlets are currently running at 98% occupancy rate. In addition to running coffee shops and food courts, the Company also operate 121 food stalls including 36 "mixed vegetable" rice stalls and 43 dim sum stalls.

Financial Highlights

The revenue has been growing at a CAGR of 7.6% over the last 3 years from $148.8m in FY2014 to $172.2m in FY 2016. Based on the unaudited pro forma, the profit attributable to owners grew by a CAGR of 9.9% from $20m to $24m during the same period.

According to the prospectus, if the service agreement is in place, the EPS will be 2.01 cents for FY2016. This translate into a historical PER of around 12.44x. Assuming a 50% payout, the implied dividend yield is around 4%.

Assuming EPS grow by 5%, the EPS will be around = 2.01 x 1.05 = Singapore 2.11 cents. That translate into a forward PER of 11.8x and dividend yield of around 4.2%. 

Use of Proceeds

Nothing controversial. Majority of the proceeds will be used to expand and improve its productivity and efficiency.

Substantial Shareholders

Mr. Lim Hee Liat is the substantial shareholder with ~42% stake with other founding members. There are 2 institutional investors - namely Vanda 1 and ICH Gemini Asia.

Vanda 1 is managed and controlled by Heliconia Capital Management. Heliconia also invested in Jumbo as a cornerstone investor in October 2015. My write up on Jumbo is here. The presence of Heliconia as pre-ipo investor bodes well and both Vanda and ICH will be subject to lock-up. The effective price paid by the pre-IPO investor is around 20c. I expect both investors to be vested for the longer period post IPO.

What I like about the Company
  • Recession proof business. Coffee shop culture is part and parcel of our lives and there is demand for "cheap" food during good times and bad
  • Highly cashflow generative business. You need to pay cash before you can get your fix of kopi every morning. On that note, the Company has no debt on its balance sheet and will have cash of $74.5m after the IPO
  • Financials are audited by Ernst & Young, a big 4 audit firm
  • The management is experienced and proven team. The founder started the business in 1990 when he was only 24! 
  • There are low hanging food which efficiency and cost savings can be achieved, such as setting up a central kitchen and improving the "cashless" payment system for younger customers
  • Intends to pay at least 50% of net profits attributable to shareholders as dividends
  • Insiders (one ED and 3 associates of ED) are supporting the IPO and intends to subscribe up to 10.8m new shares
  • The base salary of the management team is reasonable and not excessive and the service agreement helped provide an alignment of interest
Some of my concerns
  • Low barriers to entry and highly competitive industry. It is not exactly difficult for a consortium to buy up coffee shops and start running them. As such, there are many competitors in this space. Competitors include Broadway, Chang Cheng, S-11, Badaling, Kim San Leng, Koufu and Kopitiam
  • The NAV is only 4.56 cents versus the IPO price of 25 cents. In other words, you are paying a premium to "buy into the coffee shops"
  • The labor crunch and lack of Singaporeans willing to work in these sectors may affect the business operations and future growth
Peer Valuations

I received the above table from my friend and it looks fine. Helped me save time as i don't have to recreate my own list. The peers are trading at an average PER of around 24x!  Japan Food is trading at around 17x PE and at 4.4% yield. 

Assuming the "fair value" is 15-18x (i am being conservative here), the fair value of Kimly based on the forward EPS of around 2.11 cents is between 31 cents to 38 cents. If it trades up to more "unreasonable" levels of 18-22x, the fair value will be between 38 to 46c. I will be more conservative here and expect the price to debut between 31 to 38 cents.

My Chilli Ratings

I am giving it a 3 Chilli ratings. Hoot ah!!!

The IPO is priced very attractively vis-a-vis its peers. This is a good chance to own some coffee shops that is highly cash flow generative, has no debt and gives you a yield of more than 4%!  

(Do note that Mr. IPO is vested hence the view is super biased)

Saturday, 14 January 2017

Dasin Retail Trust

Dasin Retail Trust ("DRT" or the "Trust") is offering 151,768,900 units at $0.80 per unit of which only 2m units will be available for the public tranche. There is an over-allotment option of 9,343,300 units in the event the IPO is oversubscribed. A separate cornerstone tranche of $25m of units have been offered to China Orient Asset Management and Haitong International Fund SPC.

Its principal investment mandate is to invest, develop income producing real estate in Greater China with initial focus on retail malls. The prospectus is here and the IPO will close on 18 Jan 2017 at 12pm. Investors need to know that this is registered under the Business Trust and is not a REIT.


The initial portfolio comprises 3 retail properties and DRT will acquire Shiqi Metro Mall by 30 June 2017. The properties are located in Zhongshan City, Guangdong. To help you visualize where the city is, Zhongshan city can forum a "triangle" with Macau and Hong Kong in the Pearl River Delta region. About 66% of the IPO proceeds will be used to acquire the portfolio with the balance repaying existing loans, transaction costs and for working capital.

According to the prospectus, there is higher economic activity, standard of living and strong consumer spending culture in Zhongshan city vis-a-vis rest of China.


The Sponsor is Zhongshan Daisin Real Estate Co.., Ltd, a leading developer in the city of Zhongshan. The sponsor is an award winning real estate development company in China and has concluded an extensive "Right of First Refusal" pipeline with DST.

Distribution "Waived"

Distribution waiver, in whatever terms you described it, is a form of financial engineering to me.

According to the prospectus, the Sponsor has selected mature assets as well as younger assets that have yet to reach its potential. The Sponsor waived a portion of its distributions entitlements to ensure investors receive a "market-level" rents immediately... whatever that means.

In layman terms, you can translate it as "The Sponsor has decided to "boost" the yield to comparable China REITs, otherwise, investors will not subscribe to its IPO". The distribution waiver will step down over time and end after 2021.

Based on the waivers, the projected yield will be 8.5% for FY2017 and 9% for FY2018.

Without the Wavier, the yield will drop to 3.8% and 4.7% respectively. 

NAV per unit (please correct me if i am wrong)

This is so difficult to find in the prospectus. Assuming the equity (page 152) is RMB 2,702,803,000 and the total number of units outstanding is 549,606,000 (page 137), the NAV per unit in RMB is 4.9 RMB per unit or $1.01 per unit. The IPO price of $0.80 is at a discount to its book value.

What i like about Daisin Retail Trust

  • In built rental escalation clauses in Ocean Metro Mall and Xiaolan Metrol Mall as well as expiry of rental free periods for Carrefour at Ocean Metro Mall
  • The infrastructure development such as the Shenzhen- Zhongshan bridge and the Hong Kong - Zhuhai - Macau bridge will spur economic development to these 3 regions and will benefit Zhongshan
  • Seemingly strong sponsor with long track record
  • The CFO of the Trustee-Manager, Mr. Ng Mun Fai, has previously worked at KPMG Singapore and likely to be one of our own. Lol. At least should trust our kaki lang on the financials? The only flip side is he just joined DRT in 2015, hoped he stays...
  • The sponsor continues to own ~60% of the malls, providing some alignment of interest
  • It is not highly levered, the leverage is around 30.7%
  • IPO is at a discount to its book value.
  • Ability to attract good tenants across all its malls

Some of my concerns
  • Overly concentrated in one city of Zhongshan
  • The land leases will expire between 2041 to 2046 compared to the freehold status of malls in Japan (Croesus Retail Trust). While this is "common" in China, I have no idea what will happen when the lease expires after 24 years
  • The use of distribution waiver as a form of financial engineering meaning it will offset any potential rental escalations.  
  • Malls are in pretty saturated market and the behavioral patterns of Chinese consumers are changing with the presence of online malls.  
Listed Comps

Dasin is definitely not the first China trust to list on SGX. Let's look at some of its peers. Listed comps include the list below:
  1. BHG Retail Reit. My write up is here.
  2. CapitaR China Trust
  3. Fortune REIT HKD
  4. Mapletree Greater China Trust
I think the two closest comps will be BHG Retail Trust and Capital R China Trust. BHG launched at the IPO price of $0.80 per unit at the yield of 6.3% (with financial engineering) and had given it a zero chilli rating back then.The price has since dropped to 65c, giving it a yield of 7.75% now and at 0.81x its book value.

Capital R China is currently yielding around 6.6% and at 0.92x book value

My Chilli Ratings

While i don't like the financial engineering, the issuance is priced at 20% discount to its book value and at an inflated yield of 8.5%. This compares favorably to BHG at 7.75% and CapitaR China Trust at 6.6%. I have not done an analysis on how the yield will change as the distribution waiver falls.

I will give it a one chilli rating given its fairness in pricing the IPO. My gut feel is don't expect much fireworks but I don't expect it to drop drastically given its relatively small issuance and fair pricing.  

Samurai 2K Aerosol Limited

For information only. Not spending too much time as the placement is already closed with no public tranche.

Samurai 2K Aerosol Limited ("Samurai 2K" or the "Company") is placing out 20m shares at $0.20 each for a listing on Catalist. There is no public tranche and trading will commence on 16 Jan 2017 at 9 am with a market cap of $20m. The link to the prospectus is here.

Principal Activities

The Company is headquartered in Malaysia and is a high performance aerosol coating specialist for automotive refinishing and refurbishing industry.  Samurai 2K manufactures, distributes and markets products under its own brand.

According to the prospectus, the Company has a 27% market share in Malaysia and 5% market share in Indonesia in 2015.

Products segments and brands

The picture above shows what the aerosol is used for and the Company is probably alluding that its products are mainly used on motorcycles (Trains are not included). The brands include Samurai, Ninjusu, Bushido, CanArt etc. Seems like the owner is a fan of Japan. The products are manufactured in Johor and distributed to more than 4 countries.

Market Share

With a focus in this region, the addressable market share for two wheelers seemed large enough for the Company to continue its growth trajectory here.

Financial Highlights

The Company generated RM 30.6m revenue and a net profit of RM 5.4m for FY2016. Net profit increased by 3x from FY2014. What i like about the trend is that it is increasingly gaining revenues and inroads into Indonesia in FY2016. 

However, while 1Q 2017 showed the revenue trend to be increasing, what is worrying is the net profit and margin dropped quite significantly to RM291k and 3.6% (shown by the red box above). The cause of the drop is due to huge increase in admin expenses The increase in admin expenses in Q1 FY 17 was attributed to increase in staff cost and legal and professional fees for the listing, which i assume is one-off.

Future Plans

The Company intends to upgrade its production facilities, focus on R&D and increase spending on marketing and branding as well as expand through acquisition.


According to the prospectus, assuming the service agreement is in place, the Company is listing at a historical PER of 13.5x. The NAV per share is around 19.2 sen (or S$0.06) at today's exchange rate versus the IPO price of $0.20.

The gross profit grew by 65% in Q1 but the profit dropped due to increase in admin expenses which some like staff cost are recurring while others like listing expenses is probably one-off. The listing status will also attract higher compliance and directors fees. 

I am not privy to the financial forecasts. Assuming EPS hovers plus or minus 20% for FY17, the EPS in Malaysian sen will be between 4.32 (1.32 Singapore cents) to 6.5 (2.08 S cents).  A PER multiple of 11x will imply a price of around 14 to 23 cents.

What I like about the Company
  • I like companies that have its own brands and products and some patents. At the end of the day, the brand will help the Company differentiates itself from competitors
  • The addressable market for motorcycles is large in this part of the world (SEA) and if Samurai is able to gain market share, it will bode well for the Company.
  • Strong growth trajectory in both revenue and profitability over the last 3 years if the Company can execute well in Indonesia and potentially Vietnam.
  • Well diversified customer base
Some of my concerns
  • Currency translation risk. While the Company cost base is in ringgit, it obtains some of its materials in US$. In addition, it derives most of its revenue from Malaysia and Indonesia as well. The movements of MYR and IDR against the SGD will have implications on the reported numbers given its listing status here.
  • It is a small cap stock with market cap of $20m and investors will "forget" about this Company over time. I looked at the stock performance of  the last 10 Malaysian companies listed on SGX and frankly, the results is not encouraging. They suffer from lack of trading liquidity and low share price post listing.
  • It operates Indonesia with a susidiary that is only 67% due to regulations. The 23% not held directly may cause issues if things do not work out between the parties 
  • It didn't "promise" to pay any dividends as part of the listing
  • Given its small cap status, it is not surprising that the ownership is held by a few individuals. While it creates alignment of interest, the flip side is also true where investors can't really do much to "change" the Company and management is critical.
  • It is a competitive market with strong competitors such as Nippon Paint.
My Chilli Ratings

The small cap status allows the Company to be able to place out the shares to close circle. If well executed, it will debut ok given the current positive market sentiments. Over the long run, as we see in many small cap Malaysian companies, the liquidity dries up and the share price crashed.

My ratings is meaningless since there is no public tranche. If there is a public tranche, i will probably give it a miss for reasons mentioned above.

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