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Friday, 31 August 2007

Rough Month for IPOs as market turns turbulent

Here is an article found in the Straits Times on 31 Aug 2007. - Rough month for IPOs as market turns turbulent

THE turmoil engulfing the stock market has been dealing a huge blow to the once-thriving initial public offering (IPO) sector. The Straits Times THE turmoil engulfing the stock market has been dealing a huge blow to the once-thriving initial public offering (IPO) sector.

Investors who have been reaping windfalls from IPOs now have cold feet amid a hair-raising investment climate and are instead seeking safety in blue chips. Only one of the nine firms that listed on the Singapore Exchange this month - Ascendas India Trust - is still trading above its issue price. The rest have fallen between 6.25 per cent and 33 per cent below their issue prices.
This is in stark contrast to the first seven months of the year, when new listings regularly traded at a hefty premium over their IPO prices.

Dealers expect the flow of IPOs to peter out over the next two months. Only two preliminary IPO prospectuses have been posted on the Monetary Authority of Singapore's Opera website, while two have already been withdrawn. Companies are likely to delay listing because liquidity is drying up as the number of investors willing to take up placement shares dwindles.

'Some investors have become so used to the idea of getting a regular windfall from IPOs that they have forgotten that there may be a risk involved. The moment they lose some money, they also lose interest,' a dealer said.

The local bourse has been on a roller-coaster ride, as the crisis in the United States' mortgage sector continues to plague global financial markets. Despite the souring appetite for risk, a Singapore merchant banker noted that some firms had gone ahead with their IPOs here, as the accounts presented on their prospectuses 'might have gone stale otherwise'.

'By failing to hold back, these firms are taking a risk that their IPOs will be poorly received by the investing public, which is unnerved by events on Wall Street,' he said. There has also been a flight to quality, as investors switched out of riskier stocks into blue chips, which seem to be weathering the wild market swings better.

Phillip Securities managing director Loh Hoon Sun said: 'Most new listings are fairly small and do not attract an institutional crowd. So, it is not surprising to find retail investors losing interest in these companies when their prices fell.'

Bigger IPOs have generally fared better of late. Ascendas India Trust, which has a market value of $1.1 billion, was still up 18.6 per cent over its IPO price of $1.18 when it closed at $1.40 yesterday. Parkway Life Reit, with a market capitalisation of $721 million, was down just 6.25 per cent from its $1.28 issue price. It closed at $1.20 yesterday. But textile maker China Hongcheng has fallen 33 per cent to 33.5 cents from its 50 cent debut on Aug 8. Its market value is only $89.8 million. Another smallish IPO, Sunmart Holdings, which makes spray products and has a market value of $70.4 million, fared almost as badly. It has fallen 30 per cent from its 25 cent debut on Aug 15 to 17.5 cents. Some dealers do not expect IPOs to make a speedy comeback, given uncertainties in the market .

'There are already some cheap bargains available, as some stocks have fallen 50 per cent to 60 per cent from their peaks. Why should anyone bother about IPOs?' one dealer said.

Upcoming IPOs? Any takers?

Friday, 24 August 2007

Parkway REIT debuts below IPO price

(Source: Today Newspaper dated 24 Aug 2007)

I believed those who received the shares through balloting must be wondering if they are 'lucky' to get it because they could have bought the shares at a cheaper price from the open market on its debut. If a 'stable and bluechip' REIT also opens below the debut price, i doubt underwriters will dare to bring any BIG float ipo to the market in the short term. More likely smallish IPOs will be used to test the market sentiment first as it is easier to place out and 'control' the smaller float.
I guess i can take a 'prolonged' holiday in the meantime...

Monday, 20 August 2007

Is this the start of the bear market?

I believe all the investors would want to know if this severe correction is the beginning of the bear market and whether the current rebound is a technical rebound or a resumption of the uptrend. 32 of you participated in this poll. The results is still slightly bullish bias with 37% on the bullish side and 28% on the bearish side. The remaining 34% of you are 'unsure' and feel that it could go either way depending on how the fall out of the US sub-prime market pans out.

Let's take a quick look at the 'health' of the STI by looking at the technical picture. The 50-day moving average is beginning to turn downwards and the 200-day moving average has also been breached. It manage to stage a strong rebound today and in my view, STI will need to regain the 3,500 level and maintain above that level to 'overcome' the bearishness. Stock market is a discount mechanism and trade 6 to 12 months ahead of the cycle so if STI cannot move above the 3,500 level and the 3,000 support level gives way, then this could be the start of the bear market. On the other hand, if STI can move above 3,500, it will likely mean the resumption of the uptrend.

Thursday, 16 August 2007

The fall of the Asia Pacific bulls

(source: Bloomberg)

The market in Asia Pacific went into a free fall today after US market closed in the red again for the 5th consecutive days. Currently i am running a poll on whether this correction is the beginning of the Bear Market, do drop by the blog and cast your vote if you have not already done so.
The bull has really fallen hard this time round and here is a little video to perk you up if you still have positions in the market.

Wednesday, 15 August 2007

Performance Analysis


Let's take a quick look at the performance of IPOs so far and you can see that the most recent IPO listings have all gone below water. The IPO window may have closed now for lousy companies that try to be passed off as gems. Investors will be very discerning since sentiments has been rattled quite badly in recent weeks. It is amazing that Sunmart still opened and closed above its IPO price. I must say the 'support' have been very strong from the underwriters and placement agents under such bearish mood today.


The following is a news article that appear on the Business Times today entitled "High IPO premium may take a breather". I 'copy & paste' the story here in case the link is gone.
After blistering year, market may get picky over who it rewards

(SINGAPORE) With first-day closing premiums for initial public offerings (IPOs) regularly shooting for the moon, it has been a great 2007 for local IPO investors so far. But market players warn that the recent US sub-prime fallout means it is now less likely that prices will surge on the first day of trading.

The local IPO market has roared this year, with 37 listings of companies, real estate investment trusts (Reits) or business trusts raising over $4.7 billion. Strikingly, 19 - or more than half of these - saw first-day closing prices of 50 per cent or greater than their issue price, compared to just 14 out of 61 IPOs for all of last year. And twelve out of the 19 saw prices double or more on the first trading day, compared to just three listings in 2006 that achieved this milestone. But a whiff of caution and uncertainty could now settle over the market.
Concerns over the US market for collateralised debt obligations (CDOs), which recently led French bank BNP Paribas to freeze US$2 billion worth of funds over difficulty in calculating their value, have led to rising interests rates and drying up of liquidity in other markets.
Banks are generally facing difficulty in placing shares to institutions or marketing to retailers, especially for issues with weaker fundamentals, one market source said. 'Seeing the share price surge on the first day of trading is not a sure thing any more.'

Patrick Lee, head of UBS investment banking for Singapore and Malaysia, added: 'Placements will be more challenging in this environment. The more risky deals will be more difficult to push through. Investors are more focused now on seeing how markets trade and in managing their portfolios.' He said there was still anxiety over credit markets and the sub-prime fallout. 'The problem is that people don't know how widespread the contagion is. Once they do, the market will normalise,' said Mr Lee. But deals are still going through, he added, pointing out that Parkway Life Reit, which launched its IPO last week, was 'priced very successfully' near the top of the range, with the institutional tranche 14-15 times subscribed. 'What helped is that Parkway is a good name and the Reit space in Singapore is well regarded,' said Mr Lee.
Other sources said the current market sentiment will have more impact on yield-based instruments than pure equity plays. 'CDOs and Reits are all part of yield-based instruments. So when there is a default in one category of these, it will typically cause a re-pricing of risk premiums. For pure equity plays, equity pricing may be affected, but it is unlikely that you will see drastic actions such as a pullout of the IPO,' the source said. Some investors may point to Arcapita, the Bahrain-based bank that last week called off the planned listing of a US$300 million investment trust in Singapore. But sources told BT that Arcapita withdrew its IPO because private investors looking to buy its wind farm and water utility assets at higher valuations had approached the bank directly even before the recent market downturn.

Otherwise, the IPO pipeline remains robust. 'The US sub-prime mortgage and CDO situation has not affected our listing pipeline', Lawrence Wong, head of listings at the Singapore Exchange (SGX), told BT. 'We continue to see a healthy pipeline of mandates and interest shown by investment banks and intermediaries on a listing on SGX,' he said.
At DBS - one of the underwriters for Arcapita, along with Morgan Stanley - the bank's head of equity capital markets, Kan Shik Lum, says Asian economies are still robust and the IPO pipeline in Singapore and Hong Kong is going strong.

Though the CDO woes have resulted in the current market volatility and undermined investor confidence worldwide, IPO candidates with strong fundamentals can expect to launch their deals on time and even price their issues aggressively, he said. 'But the chances of some issuers delaying or aborting their fund-raising exercises cannot be discounted,' Mr Kan added.

UBS's Mr Lee said the bank expects markets to remain choppy for the immediate future. 'Although we will see less issuances, there will be a larger proportion of top-quality names because they can still get deals accepted. 'There is still a lot of liquidity and interest in Asia. You will see people coming back to the market, because Asian companies are still doing well,' he said.

Tuesday, 14 August 2007

When do I usually sell my IPO shares

Here is the poll results for the timing in which visitors to this blog sell their IPO shares. 45% of those polled sell their IPO shares on the first day of trading (if it is above water) and i believe the mentality is somewhat like buying 4-D or Toto with $2 and the sudden 'wealth' seemed too good to be true. :)

The fact that the prices of most IPO shares dropped after the first day seemed to reinforce the belief to 'take the money while it is still there'.

34% of those polled wished they have better luck in getting the IPO shares. I have previously shared some tips on how to increase your chances to get the public IPO shares as well as how to lay your hands on the IPO placement shares. I hope these little tips will help you in one way or another.

Happy punting.

Sunday, 12 August 2007

Parkway Life REIT

Parkway Life REIT is established by Parkway Holdings to invest primarily in income-producing real estate and/or real-estate related assets in the Asia Pacific region that are used primarily for healthcare and/or healthcare related purposes. The initial portfolio includes Mount Elizabeth Hospital, Gleneagles Hospital and Eastshore Hospital. The prospectus is here.

Offering: 288,865,000 units at $1.28 per unit. (subject to overallotment).
Public offer closing date: 13 August 2007 12 pm
Listing date: 23 August 2007 2pm

This is the 2nd "healthcare" reit after First Reit. Although the yield is lower than First Reit, it can be considered as a better quality Reit when compared to First Reit as it has 3 well-known hospitals that are located in Singapore (no political or forex risk) and is backed by a reputable sponsor (where Singapore is trying to be a medical hub). Unfortunately the yields from Parkway REIT is not 'spectacular' where it offers 4.74% in 2007, 4.88% in 2008 and 5% in 2009. It could, however, provide an alternative asset class to investors who wants to diversify their exposure from other types of property REITs.

Personally i believe Parkway REIT will be well received by the investors and assuming a yield compression to 4% on blended 2007/2008 yields, the fair value should be between $1.50 to $1.60 and that represent some 10-20% upside from its IPO price. In times of uncertainty, defensive stocks like Parkway REIT should still be well -received by the investing public, especially one from a reputable Sponsor with good properties.

Uni-Asia Finance Corporation

(IPO booth at Raffles Place... not the right timing to get prospectus i guess)

The Company is an Asian-based structure finance arrangement and alternative assets investment firm. The prospectus is here.

Public Offer: 3.3 million shares at $0.55 each
Placement Offer: 62.1 million shares
Manager: DBS
Closing Date: 15 Aug 2007

This IPO is priced very 'cheaply' with a Post-IPO NAV of 51.7 cents versus its IPO price of 55 cents. It is also priced at a historical 7.6x PE based on post-IPO shares of 240.4m shares and FY06 EPS. I believed this IPO will be undersubcribed if it is not priced so cheaply!

Despite being vested from the IPO placement tranche, i would advise investors to avoid this IPO for the following reasons:
  1. Companies in Structure Finance business has not performed well post-ipo. Without digging deeper into the amount of dividends paid since listing, as of 10 Aug 2007, Babcock & Brown (structured finance) is still 13% below its IPO price.

  2. Companies in "Shipping Trust" business has not performed well post-ipo as well. First Ship Lease Trust is still 7% below IPO.

  3. The business is priced in US$ and I believed US$ will continue to weaken against S$.

  4. Sentiments towards IPO has been very weak due to the recent market turmoil and the premium above its IPO price for recent listing is less than 10%.

  5. ETLA closed below its IPO price, reflecting the weak market sentiments.
While the IPO is cheap, if you are looking for a significant 'stag', I dont think you can find in Uni-Asia. My recommendation is to avoid this company if your intention is to 'punt' the IPO. Put your IPO application fee of S$2 to better use elsewhere.

Thursday, 9 August 2007

Happy Birthday Singapore!

(view from an office building at Raffles Place)

Happy 42nd Birthday Singapore! Singapore is indeed a City of Possibilities. Here is a National Day theme song for you. "There's no place I'd rather be..."

Wednesday, 8 August 2007

Investing in IPOs

Here is lesson from on how to invest in IPO. In US, they have cited the example of Microsoft. Frankly i too, wish i have the foresight to invest in Raffles Education, Ezra, Swiber etc since their IPO.

But the reality is, for every 1 good IPO, there are 9 other lousy ones. How many of us really have the foresight (to pick the right company) and the patience to hold the IPOs for 10, 20 and even 30 years?! and looking at the latest poll results (still in progress) where 45% of you said you will sell the IPO on the first day, no wonder you and i are still punting IPOs and not investing in them. Perhaps i should use change the title of my Blog to Punting in IPOs and sign off my postings with Happy Punting. :)

Tuesday, 7 August 2007

Am I lucky or am I not lucky?

The deteriorating stock market claimed 'another victim' today when MAP technology closes below its IPO price. (This will somewhat affect the sentiments on ETLA negatively?) In addition, the 'price premium' over the IPO price has also been decreasing steadily and the premium is now 10% to 20% on average. For the first time in many months, i actually wondered if getting allocated for IPO shares is a good thing under current bearish mood.
I am vested in both China Hongcheng and ETLA. A 10% to 20% premium over its IPO price will mean an opening range of 55 cents to 60 cents for China Hongcheng and 52 cents to 56 cents for ETLA. Good luck.

Monday, 6 August 2007

Sunmart Holdings Limited

(IPO booth in Raffles Place, why is everyone turning their backs to me? A sign on how the share price will perform? :P)

Sunmart Holdings Limited manufacture and sell a wide range of spray products comprising primarily spray pumps, aluminimum cans and plastic bottles, which are used in the packaging of fast-moving consumer goods such as hair products, cosmetics, perfume, deodorant and detergentl pharmaceutical products such as disinfectants and antiseptic; and health-supplements. The prospectus is here.

Invitation for 102,000,000 New Shares comprising:
Public offer: 5,100,000 shares at $0.25
Placement offer: 96,900,000 shares
Manager: Mitsubishi UFJ Securities
Underwriter and Placement Agent: SBI E2-Capital
Closing Date: 13 August 2007 12pm

Sunmart has 402,000,000 shares post-ipo and based on the IPO price of 25cents, the market cap is around S100.5 million. For the FY2006, revenue is S$ 47.15m, net profit after tax is S$ 9.56m and EPS based on post-ipo shares is Singapore 2.38 cents. Net margins have been increasing from 8% in FY2004 to 20.3% in FY2006. Assuming a 30% growth in revenue in FY2007, the revenue will be S$ 61.3m and assuming the net margin of 20% is applied, net profit will be S$ 12.2m. Based on post-ipo outstanding shares, EPS for FY2007 will be Singapore 3.03 cents. Assuming FY08 grow by another 30%, EPS for FY2008 will be Singapore 3.94 cents.

The closest listed peer is Full Apex which makes PET bottles for the softdrink industry. As of 6 Aug, Full Apex is trading 8.53x historical (31 March 2007) and 6.78x forward PE (31 March 2008). While you can argue that the customers and products of Sunmart is more diversified, under current weak market sentiments, the investors may not give this stock much excess premium. At the IPO price of 25 cents, it is priced at 10.5x historical and 8.2x forward. In this regard, the peers valuation does not give much excitment to this counter (unlike the China Sports case).

Assuming i give it the most aggressive valuation of 7-9x FY08 PE, the fair value range will be between 27 cents to 35 cents. Under current weak sentiments, I will decide whether to apply for this IPO closer to the application date (see the performance of China Hong Cheng and ETLA first). Check back this blog again nearer to the IPO closing date :) I will give it a 2 Chillis for now.

How to lay your hands on the placement shares?

I have shared previously on some "tips" to increase your chances of getting IPO shares from the public tranche. I think many of you are still frustrated by the low probability of getting IPO shares from the public tranche (looking at the current poll results so far).

Today I will share with you some tips on how to increase your chances of getting your hands on the placement tranche. Before we discuss the various 'tips', we must first understand the view point of the placement agent and underwriter.

Imagine you are acting as a placement agent for an IPO and you want to ensure that your IPO is a success, what are the criteria you would set for the investors you place those shares to? Would you want to place your shares to investors who will sell on the first day of trading or would you prefer to place out the shares to reputable investors who will boost the profile and awareness of your IPO? Well, here are some tips that may just help you get some placement shares that you dream of.

Tip 1: Change your name to Mr. Temasek

If your name is Temasek, placement agents will be begging you to take their IPO shares so that they can put your name down in the IPO announcement (or 'IPO Tombstone"). Temasek is known to be a longer term investor and by having such an anchor investor in your IPO, it will sure attract the attention of other investors to support your IPO. Similarly, if you belong to the "Elite Investors Group", placement agents will be offering their IPO shares to you on a platter. Elite Investors Group are reputable investors who will raise the profile and value of your IPOs and may even help placement agent to 'support the price' post-IPO. Example of investors who belong in this Elite Group will be investors like Tommie Goh and Gay Chee Cheong (2G Capital), David Loh and Han Seng Juan (Centurion Investment Management), Koh Boon Hwee, Ooi Hong Leong (Chip Lian), Sam Goi (Popian King) and professional funds such as Dubai Investment, Morgan Stanley, BNP, etc. Usually these investors will take up about a huge chuck of the IPO placement shares and so-called "anchor the IPO". The placement agent will be quite confident that the IPO will succeed because of these anchor investors. If you belong to these Elite Group or if your name is Temasek then you dont have to read further.... hahaha :)

Tip 2: Concentrate your trades in a securities firm that do IPOs.

If you dont belong to the Elite Investors Group, then you must try to get yourself in to the remaining 1,000 public sharesholders which they must place the share to in order to fulfil the listing requirement. These investors are usually allocated between 3 to 20 lots each to allow the placement agent to meet the minimum shareholders requirement. My tip to you will be to concentrate your trades in one securities firm. Dont open a trading account with Lim & Tan, go and open a trading account with DBS, Kim Eng, UOBKH, CIMB, Westcomb and even Philips Securities! Concentrate all your trades at one of these brokerage houses so that when you demand placement shares from your broker, you can 'talk louder' and your demand can 'carry more weight' if it is backed by 'paid commissions'.

Tip 3: Get a dealer, not a remisier.

Why do i say that? Dealers usually work for the brokerage firms and they are usually not allowed to handle their personal/relatives' trading accounts. In this regard, there will be 'less hanky panky' as they will have to justify to their superiors on why they allocate the placement shares to you. They also get more IPO placement shares over their remisiers counterpart because the Company will earn a bigger chuck of the commision from dealers. On the other hand, remisiers have more freedom in whom they allocate the placement shares to and sometimes some remisiers may just allocate them to accounts which they have vested interest. It is also true that remisiers will have less access to IPO placement shares versus the dealers.

Tip 4: Join the IPO club if there is one.

IPO club are open to investors who are willing to participate in ALL the IPOs underwritten by the brokerage firm. In this aspect, investors have to accept the IPO allotment regardless of whether it is a good IPO or a bad one and in good times as well as bad times. If your broker offer you the chance to participate in the IPO, grab it. The rationale is that brokerage firm will usually not launch any IPO during bad times because if the shares are not fully subscribed, the brokerage firm will have to 'underwrite' those shares. DBS and UOB have IPO clubs but they may be 'open for enrolment' only during selective period (like beginning of the year) or to selected people (the high net worths or those who trade a lot through the company). Stay long enough with these securities firm and you may be offered some placement shares. In addition, some securities houses offer internet users some placement shares as well. (e.g. DBS and Westcomb).

Tip 5: Tell your broker you are interested in placement shares and tell them way in advance.

By the time you see the IPO for public tranche is launched, it usually means that the placement tranche has been fully subscribed as well. As such, you will have to be more pro-active to check out the MAS Opera website to find out which offers are pending approval and indicate your interest to your broker if their brokerage house is the underwriter or placement agent. Always tell your broker that you are interested in IPO placement shares so that they will not 'forget you'. If you dont ask, how will your broker know? There is a hokkien saying "脸皮厚厚,吃到老老" just ask your broker for the shares. But again, this will tie back to tip 2 again. If you have generated a lot of commissions for your broker, then your chances of getting the placement shares will be higher.

Ok i will just share these 5 tips for you. Hope you will find them useful to help you lay your hands on those placement shares. Looking at the way the market is 'crashing in the US and in Asia', I am not sure if the IPO window may be closing soon. If you are those who have never received calls from your broker, you may soon be asked by your broker whether you want those placement shares?! and during those times, you may not want the placement shares anymore... well, this is the irony of life isn't it? :)

Sunday, 5 August 2007

IPO Performance Analysis


Let us take a quick look at performance of the IPOs covered by this blog since 07-07-07.

After the recent bloodbath early this week, RH Energy, China Sports and Yongxin (rated 3 Chillis) still trade more than 90% above its IPO price. Well done :) Most of the IPOs are currently trading 20% to 60% above its IPO price with only Finance One below water.

As mentioned in my blog, Fair Value can be a very tricky thing and it seemed that after the bloodbath, the shares have actually dropped to my fair value?! Is my fair value then the correct value and earn me the right to boast about them? Of course not but it just happen that most of the stocks are trading within or close to my 'fair value' range right now. My definition of Fair Value is : Whatever the market deemed is the fair value will be the fair value. My fair value is just a guide for me to know when to take profits as market can be overly depressed or overly exhuberant most of the time.

And the top 3 performing IPOs as of 5 Aug 2007 are ......

Friday, 3 August 2007

ETLA Limited

I cannot find the IPO booth at Raffles Place for the last 3 days. Perhaps the Company and its Manager, DBS, doesn't feel the need to do so especially if they have already fully placed out the shares? hmm... let see if having no booth will affect the share price.

ETLA offers contract equipment manufacturing, sheet metal fabrication, and precision machining services. The prospectus is here.

Public offer: 3.8 million shares at 47 cents each
Placement offer: 34.2 million shares
Closing date: 7 Aug 2007
Manager: DBS Bank

Once again, this belong to the tech sector and once again, you know my 'dislike' for tech companies and once again i use a valuation maxtrix PE multiple of 8x-10x. (Two reasons why i dislike tech companies are: (1) they have very low net margins and (2) their products are always subject to price competition). The net profit for 2006 is S$6.86m and assuming a 50% growth (once gain, the CAGR can be misleading as they started from a low base), the 2007 net profit will be around S$10.29 million. Based on the post-ipo no. of shares of 140,691,100, the EPS is around 7.3 cents. In this regard, the fair value range will be between 58 cents to 73 cents.

All the IPOs covered by this Blog (after 07.07.07) is still in the green except for Financial One. I believe this one should open above water as well but i wont be holding on too long to it. (vested).

Thursday, 2 August 2007

Reasons for visiting this Blog

Dear fellow investors,

Thank you for participating in the first poll on why you visit this blog. The results of the first poll is here and 56% (more than half of the 92 participants) chose finding out the fair value as the main reason for visiting this blog. I certainly hope that my blog has helped you in one way or another.

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