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Thursday, 7 March 2019

Reclaims Global Limited



Reclaims Global Limited ("Reclaims Global" or the "Company") is offering 20m shares for its IPO on Catalist at $0.23 each. 18m shares will be via placement with 2m shares for the public offer. The offer will close on 7 March 2019 at 12pm. The market cap is $30.1m.

Principal Business

The Company is based in Singapore and provide services to the construction industry, specializing in the recycling of construction and demolition waste, customization of excavation solutions and operating fleet management. 

The 3 key lines of businesses are presented in the table below:


Financial Performance



Reclaims Global revenue has been declining over the last 3 years and net profits has also decreased from $6.9m to $3.2m in FY2018. For the 6 months FY2019, the revenue was stagnant and it also reported a loss due to share based payment. Excluding the share based payment, the EPS is also stagnant at 0.54 cents (see footnote 4).

The EPS for FY2019 is likely to be worse than FY2018 given the 6m loss as well as the service agreements.

Valuation

According to the prospectus, using the historical EPS and assuming the service agreements are in place, the PER is around 11.13x (compared to 8.06x). Intuitively, it would seem that the service agreement is quite lucrative, resulting in the PER jumping from 8 to 11x.

Given the likely poor FY2019 performance, i would say that the forward PER is much higher than 12x, which in my view, is very expensive in the current market environment.

What I like about the Company

  • Easy to understand business model - This is a easy to understand business. Making money from demolition and then recycling the demolished materials
  • Shares for the retail investors - While not required to do so, the Company decided to allocate 2m shares for the public offering
  • Able to win government contracts - The Company has proven that it was able to secure contracts directly from the government sectors, such as HDB, JTC and LTA.

Some of my concerns


  • Construction is a cyclical business - Reclaim's business is highly dependent on the construction industry, especially clearing up of the buildings in preparing the land for future use. It always amazes me how a company "position" itself for branding purposes, like how oil companies say they are "green". Reclaims is demolishing buildings and selling the 'waste' materials from the demolition but has branded itself as a "eco-friendly" company

  • Revenue and profitability is declining - It has been on a downtrend over the last 3 years and FY 2019 is likely to be even lower than FY2018 

  • Shares are tightly controlled - 84.7% of the Company will be held by the key management team. Liquidity will likely dry up post listing

  • Competitive landscape and limited market - My view is that the entry barrier is pretty low and the market size of Singapore is limited. There are also no strong entry barriers to this space and main contractors can budge into this space 

  • Independent board and CEO have no relevant industry expertise - I guess Andrew Chee is appointed as CEO as his skillsets "complement" the other 2 founders. The most part of his career was in the private banking space and that may prove useful in dealing with investors and future fund raising. In addition, the independent board members seemed to be overly staffed with people with audit and accounting experience (3 out of the 4 independent directors were ex auditors). Why does the board need so many accountants? It would have been better if at least one of the independent board members have relevant industry experiences and contacts 

  • Sale of vendor shares - I am really surprised by the founders bothered to sell vendor shares. The 2m shares are not significant but it sends a wrong signal to the market place

Mr IPO Chilli ratings 

I understand from sources that the Company has lowered its market valuation expectation, hence the historical PER ended at 8x. However, has the service agreement been in place, the PER would have increased to 11x. 

While I appreciate the Company setting aside some 2m shares for the retail investors, the declining revenue and profitability is a concern. In addition, the weak IPO sentiments here is not helping as well. I would avoid for now.  

Thursday, 28 February 2019

Sim Leisure Group Ltd

For Information Only - No public offer


First of all - my sincere apologies. I had a family matter to attend to and was rather pre-occupied with it. As the IPO has now closed, i will just do a quick summary for completeness sake.

Sim Leisure Group Ltd ("Sim Leisure" or the "Company") is offering 26.4m Placement Shares at $0.22 each for a listing on Catalist and there is no public offering. The IPO closed on 27 Feb and will be listed on 1 March 2019 with an initial market cap of $29.53m

Business
Sim Leisure is a developer and operator of theme parks based in Penang, Malaysia. The Group is a retro-eco theme park developer and operator that provides affordable quality fun where everyone can play the games of yesteryear, recreated for today. The website to the theme park is here


Financial Highlights


The Company's revenue has stayed consistent from FY2015 to FY2017 at around RM 9.7m but net profit declined to RM 1.3m in FY2017. Having said that, the unaudited revenue for 1H2018 jumped to RM 8.4m and net profit RM2.0m. This is due to increase in ticket price and the number of visitors with the opening of ESCAPE Waterplay in Nov 2017. If we do a simple 1H X 2 projections, revenue will likely come in at around RM 16m and net profit at RM4m.

The Company has also announced a dividend policy of 30% of its net profit attributable to owners for FY2019 and FY2020.

Assuming EPS is around 0.52 cents x 2 = 1.04 cents, the forward PE is around 21x, which is not exactly "value for money".  Assume a pay out rate of 30%, that will translate into a DPS of 0.312 cents into a yield of 1.4%. 

What i like about the Company
  • Easy to understand business  - the theme park business is pretty straightforward and any increase in ticket prices or visitors will translate to the bottom line.
Some of my concerns
  • Highly exposed to Penang Tourism - The profitability of the Company will be highly dependent on the tourism receipts. For investors who view loves that exposure, it will be a positive. Having said that, the Company is trying to diversify outside of Malaysia and the next stop will be China
  • Currency exposure - The MYR exposure can be challenging if it continues to be weak and when the Company profits is translated back to SGD for reporting purposes
  • Capex may be high - if the Company wants to expand to new geographies or expand its theme park, it will then need to incur capex and there will be risk if the rides turn out to be less than popular
  • Valuation is high - the listing valuation at 22x PER is not exactly cheap. In fact, it is pretty expensive. For comparison - Genting Singapore is trading at 16x PER and 3.4% yield. Six Flags Entertainment that is listed on NYSE is trading at 17.7x PER and 5.8% yield
Chilli Ratings

If there is a public offer, i would probably have avoided it given that there is better alternative in Genting, Six Flags or other similar companies.

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