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Wednesday, 5 December 2018

Medinex Limited

MediNex Limited ("Medinex" or the "Company") is offering 30m Placement Shares comprising 26m New Shares and 4m Vendor Shares at $0.25 each for a listing on Catalist. Since there is no public offering, i am not going to spend too much time and effort on this... as i am on holidays. 😋 The IPO has closed and will be listed on 7 Dec with a market cap of $32.80m. 

Principal Business

The Company is a Singapore-based medical support services provider, specialising in providing professional support services to medical clinics. Services include setting up of clinics, facilitating applications of licenses and business support services such as account and tax agent services, etc. 

Financial Highlights

The beauty of this IPO is at least the Company is profitable. Based on the adjusted EPS of 1 Singapore cents, the PE is around 25x (29x if the service agreement is in place). 

Assuming EPS grow to 1.7 to 1.8 Singapore cents for FY2018, the PER will be between  around 13.8x to 14.7x.

The Company intends to distribute no less than 70% of its net profit after tax for FY2018, FY2019 and FY2020.

What I like about the Company
  • Company is profitable and likely to pay dividends - One good thing about this IPO is that at least it is profitable and the revenue and profitability is on an uptrend. Doctors are probably bad book keepers, so with IRAS cracking down on doctors evading or under-reporting their income, there will be an increase in demand for their services over the longer term. The Company also intends to pay 70% of its profits as dividends.
  • Healthcare sector is more resilient to a downturn - You need to see a doctor in good time and bad and doctors need such support services as well. The support services are usually quite sticky and recurring in nature
Some of my concerns
  • HC Surgical selling vendor shares sends a wrong signal - The IPO is via placement and i am not sure why HC surgical is "cashing" out at this point in time when sentiment is not exactly strong. While the amount is not really significant, it sends a wrong signal to the market
  • Poor market sentiments - The Company is listing at a terrible time where market sentiments is bad and prices are volatile globally. This would have a negative impact on the share trading post listing
  • Ease of competitors entering the market and the scalability - It is not difficult for someone to replicate the services to be provided and the Singapore market is limited in size. 
Chilli Ratings

Since there is no public tranche, there is really no motivation here for a chilli rating. The Company is either courageous or desperate to list under current market sentiments and HCS is probably "desperate" to be selling some vendor shares. The valuation is fairly priced at around low teens PER (it is not a true healthcare company per se) and the intent to pay out 75% of its profits as dividend will probably help "support" the price.. I would probably have given it a one chilli rating (or better) during better times but it is hands off the IPO market for me for now... 

Saturday, 27 October 2018

MeGroup Ltd.

MeGroup Ltd ("MeG" or the "Company") is offering 16.5m shares for its IPO on Catalist for which 15m shares will be via placement and 1.5m shares via public offering. The IPO will close on 29 Oct 2018 at 12pm and starts trading two days later. The market cap based on the IPO price is $27.3m

Principal Business

MeGroup manufactures noise, vibration and harshness components primarily for the automobile industry in Malaysia. It also owns and operates automobile dealerships in parts of Singapore. The dealerships include Honda, Mazda and Peugeot brands. 

Financial Performance

While the dealership business forms the bulk of the revenue, it terms of profitability, it is a stable but low margin business with a gross profit of only 6.7% (see table below). On the other hand, while the manufacturing enjoys high gross profit margins, its performance can be inconsistent, where it suffered a loss in FY2017 due to fire incident.

The Company is listing at at PE ratio of around 9.2x based on the enlarged share capital.

What I Like About the Company
  • Growing car hub with lower cost base - being located in Malaysia, the labor cost is still relatively lower than other regions and that can be advantageous if the car manufacturing industry grow in Malaysia. While the political uncertainty in Malaysia can weigh down on the industry, Mahathir is a big advocate for a new national car! See link here. This bodes well for the manufacturing business but probably detrimental to its car dealership business 
  • Growing economy bodes well for car ownership - If the new government can eradicate corruption and improve the economy, then it will bode well for the Company as car sales will likely improve as sentiments improve
  • Relatively stable business - Other than the dip in revenue and profitability in FY2017 due to a fire incident, the business of MeGroup seemed pretty stable. 
Some of my concerns
  • Family run business - The Wong family comprises the CEO, Mr. Wong Cheong Chee who is 70 years old, and the 3 children, Wong Keat Yee, Wong Sai Hou and Wong Sai Keat. The Wong family will continue to control and run the company post listing but family run business always run the risk of internal squabbles and not hiring the best person needed for the role 
  • Small cap and Thinly traded - The company will have a low market cap of $27m and the ownership is tightly held by the founders and a handful of investors. As such, only 13.9% of the Company will be held by public investors. Investors who subscribe to this IPO will probably need to be wary of the thin liquidity in future
  • Malaysia exposure - the entire business is derived from Malaysia, hence the political stability and business environment is critical. Given the listing in Singapore, investors here will be having a direct exposure to the Malaysian ringgit as the revenue and dividends (if any) will be translated from MYR to SGD.  
Mr IPO ratings

The weak market sentiments and looking at IPO performances for the last 12 months, i think investors are probably better off giving the IPO market a miss. The listings from Malaysia such as Jawala, Aspen as well as the recent listings are all in the red. I would give this Company a miss (zero chilli) and keep my cash in bank till sentiments improve. 

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