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Wednesday, 28 November 2007

Hyflux Water Trust

Hyflux Water Trust is the first pure-play global water business trust to be listed on a securities exchange in Sia that provides investors with an opportunity to invest in water-related infrastructure asset in China, Middle East and North Africa region. Upon listing, it will have 13 plants in China.

Sponsor: Hyflux
Number of Units : 165 million (Out of which 30m for Public, 135m for Placement)
Price per Unit: $0.78
Yield 5.72% for FY 2008 (after Sponsor waived off its rights to the Distributions)
Yield 6.74% for FY 2009

In my personal view, this is one of the smartest strategic move by one of the richest lady in Singapore. Hyflux, with its expertise in Water Treatment, owns many water treatment plants. The setting up of the Trust allows Hyflux to 'cash out' of its fixed assets by selling these assets to the Trust in exchange for Units and enticing investors with the 'yield' carrot. To me, the yield presented in the prospectus is unlikely to be achieved if not for the Sponsor waiving off its rights to the distributions in FY2008 and most likely in FY2009, it will elect to receive its management fees in units in order to meet the yield projections. To me, the entire exercise benefits Hyflux the most as it will allow Hyflux to recycle its capital and cash out on its assets.

The closest peer listed in Singapore is Cityspring but at least the performance fee of Hyflux will not be based on its share price performance. Although i like the business in which it is in, the yield presented in the Prospectus is really too low for me vis-a-vis the risks involved. The "Sponsor" might be a better investment target that the Trust. Anyway, my personal view is not to subscribe to the IPO. If you really need that yield, a property trust might just do the trick and the share price performance of Cityspring post its listing isnt helping either.

Monday, 26 November 2007

Chunghong Holdings Limited

The Company is in the PCBA and OEM business for the Electronics Industry.

Public: 1m shares at $0.365
Placement: 54m shares at $0.365

I will not bother to do any analysis for this Company since the public float is so small (1 m shares only). Look at the current trend where the previous 4 IPOs are below water by around 15%-25%, my view is that you should just avoid this counter. If you are really keen to 'invest' in this IPO, you should be able to get it at better prices post IPO.

Friday, 16 November 2007

Dynamic Colours Limited

(IPO booth still in wraps before the stall opens)

Dynamic Colours is a leading manufacturer of coloured compounded resins & packaging materials serving the IT, electronics and petrochemical industries.

Public - 3.3m shares at $0.215
Placement - 61.2m shares
Manager and Underwriter: UOB Asia Limited

If you look at the results for the last 3 years, the revenue has been increasing but the net profit increased only marginally. Looking at the prospectus and using the net profit before tax figure, the net margin dropped from 8.9% in FY20004 to 4.8% in FY2005 to 4.3% in FY 2006. The 1H07 margins remained at around 4.3%.

1H 07 results:
Sales - US$39.6m
Net profit after tax - US$1.49m

Assume full year 2007 is 1H x 2, the sales will be US$80m and net profit will be US$3m. That will translate into a S$4.2m (assuming US$/S$ is 1.4). Based on post IPO shares of 209.97m, the EPS for FY07 is projected at 2 Singapore cents. At the IPO price of $0.215, the issue is priced at 10.7x FY07 PE. The market cap at IPO price is only S$45.1 million.

This is really a small cap counter in a competitive landscape and facing declining margins and rising resin costs. The only saving grace is that it is a "China" play and priced at close to its NAV of 19.5 cents as of 30 June 2007. Another plus point perhaps is that the Company is backed by private equity funds. The small float of only 64.5m new shares also make it easier for underwriters to help manage the share price, so for goodness sake, dont short this counter on the first day of listing as 66% of the share cap is under moratorium for 6 months! I got this feeling that this company might just surprise on the upside given its small float and cheap pricing that is close to NAV. It will be difficult to get from the IPO public tranche though. (Note: It is cheap pricing, not cheap valuation).

Tuesday, 13 November 2007

Z-Obee Holdings Limited

Public - 5m shares at 34 cents
Placement - 124m shares at 34 cents
Manager / Underwriter - OCBC Bank
Closing date: 19 Nov 2007 12pm.

The Company provides full-set solutions for the handset industry. Let me summarise the results for the financial year ended 31 March 2007:

Sales - US$46.2m (S$66m)
Net profit - US$8.8m (S$12.7m) assume US$/S$ is 1.44
EPS - US 1.77 cents (Singapore 2.55 cents) based on post-ipo no. of shares

Personally i dont like this sector. This sector in China is very competitive and cut throat. The FY2007 results really surprised me in terms of its profitability and 19% net margin. Based on the IPO price of 34 cents, the company is priced at 13x historical PE. The market cap based on the IPO price is around $169.2 million. One of the competitors in the same sector listed on SGX is Long Cheer. Long Cheer is currently trading at 6.13x PER and its net margin is much lower at 7.7%. Long Cheer's market cap is around $226 million. OCBC is one of the pre-ipo investors and they are selling vendors shares at the IPO. Personally, i never like IPO backed by OCBC.

Assuming FY2008, the EPS grow by 50% and EPS is 3.8 Singapore cents. Based on a valuation of 8x-10x PER, the fair value is around 30 cents to 38 cents. In this regard, i think upside is limited post-IPO and i will give this a miss. It will be tough to get from the IPO from the public tranche though.

Monday, 12 November 2007

Lippo-Mapletree Indonesia Retail Trust

Lippo-Mapletree Indonesia Retail Trust ("LMIR") is a retail reit that comprise of retail malls in major cities in Indonesia.

Public offer: 20m Units at $0.80 per unit.
Placement Offer: 625,469,000 Units at $0.80 per unit.

Assuming a FY2008 payout of 5.84 cents (based on its prospectus) and the IPO price of 80 cents, the yield is 7.3%

LMIR is the first indonesia retail reit offering in Singapore. The first Japanese Residential Reit "Saizen" ended more than 10% lower than its IPO on its debut, it will be interesting to see how this Indonesian Retail REIT performed. The other Indonesian-theme REIT is also by the Lippo Group and is known as First REIT but that is in the healthcare sector with higher yields.

What i think are the risks for investing in this REIT (resulting in me giving it a 1 chilli rating):
(1) Retail sector - will tie to the overall economy of Indonesia
(2) Country - High risk premium for Indonesia. Any Riots or Unrest will affect this sector greatly and you never know when the Indonesian govt may suddent change their policies etc.
(3) Forex risk - Any depreciation of Indonesia Rupiah against SG$ will be detrimental to Unit Holders.
(4) Large float - the float is very large and most likely, all the institutions who want to invest in this REIT will likely be satisfied.
(5) Weak IPO sentiments - Sentiments is hit in recent days and the market is currently not favorable to REITs.

Considering the risks above, i am not sure if the yield of 7.3% for 2008 will attract enough investors as any increase in price post IPO will most likely result in investors cashing out of LMIR and reallocating their assets into lower risk assets with better yields. I will skip this REIT since i am personally not a "REIT" person but the fact that Mapletree is in this REIT may provide some support to the share prices.

Sunday, 11 November 2007

China New Town Development Company Limited

(IPO booth at Raffles Place)

China New Town Development Company ("CNT") is a leading new town developer in PRC. They currently have 3 projects in Shanghai, Wuxi and Shenyang.

Public : 12m shares at $0.83
Placement: 388m shares at $0.83
Manager: Citigroup Global Markets Singapore
Underwriters: Deutsche Bank, DBS Bank

The proceeds will be used to develop the new towns. The 12m float is quite big for the public tranche, as such it will be 'relatively easier' to get this IPO from the ATM than usual. I cannot recall any similar companies listed on the SGX except that Yanlord (a large property developer in China) may be used as a peer comparison. If Yanlord's share price post listing is any indication for China New Town, then it will only be good news to CNT's shareholders.

On one hand, i didnt have much time to evaluate this company as i was travelling last week, on the other hand, i really dont know how to value this company with such unique operations either. I guess the comforting fact to IPO punters is that when i asked for more placement shares (than what was allocated to me), my request was rejected due to the overwhelming demand.

It is really a tough call right now to say if this IPO is worth a "stag". While i am bullish on the long term view of this Company in China (as a New Town developer in a big populated country), there are other concerns as well such as the big share float, whether they will receive new mandates for townships, short term corrective measures taken by the Chinese Government to cool the hot property sector etc.

Conclusion: If we can use Yanlord's post IPO share price as any indication, then there could be longer term upside to CNT. Subscribers to this company's IPO should hold a longer term view and IPO punters should perhaps give it a miss. My gut feel is that it will open above 83 cents though.

Tuesday, 6 November 2007

Sinotel Technologies Ltd

I am travelling on business this week and has no chance to visit the IPO booth in Raffles Place (if there is one) to take the pictures. Sorry....if any kind soul can visit the IPO booth at Raffles Place and take a picture for me, do email the picture to me. hahaha.

Anyway, i have no time to do the analysis in detailed for Sinotel Technologies and here is my take after taking a very quick glance at the prospectus and my experience with such companies.

Public Shares: 3m shares at $0.51
Placement shares: 67m shares
Issue Manager: SAC Capital
Underwriter: UOB Kay Hian

The Company is in the business of providing wireless network solutions, handset distribution and mobile entertainment enabler. Personally my experience with such companies, especially those providing 3G network solutions is that:

(1) Revenue can be very volatile and lumpy because it depends on the capital expenditure of China telecommunications giants;

(2) 3G issuance. I have been hearing that the Chinese Govt will issue 3G license for the last 2 years because of the 2008 Olympics and as of today, it is still uncertain as to when the Chinese govt will issue the 3G licences and 2008 Olympics is just less than a year away. If the 3G licenses are not issued, the telcos are unwilling to spend more $ to implement the network.

(3) Margins are dropping. Due to centralized bidding process by China Mobile and China Unicom, the margins are getting thinner. 3G networks solutions providers in China inlcudes listed companies like Hua Wei, Comba (Hong Kong) and China Grentech (NASDAQ). These rivals are much bigger than Sinotel.

Revenue - RMB 219m
Net profit - RMB 57.2m

I would caution about my projections as revenue and earnings can be rather volatile and difficult to predict for this industry. For convenience, i will project a 30% growth over FY 06 top and bottom line. My work would have been much easier if the prospectus include 1H07 results instead of 1Q07.

FY07 - Projections
Revenue - RMB 285m (or S$57m)
Net profit - RMB 75m ($15m)
No. of shares - 280m
EPS in Singapore cents for FY07 = 5.36 cents.

Assuming a PER of 10x-12x and the FY07 EPS, the fair value will be between 54 cents to 64 cents, representing some upside to the IPO price. The fair value will be higher if the following assumptions are true:

(1) We have more clarity on FY07 figures and we are able to use FY08 EPS projections

(2) 3G licenses are issued in late 2007 and early 2008. The issuance of 3G prior to 2008 Olympics will be a catalyst to this company.

(3) My market vibes report that besides Tan Kim Seng, ex-founder of KS Energy, the shares are placed out to "strong hands". We shall see if this 'market vibe' is true.

Happy balloting but it will be tough to get the shares from the public tranche.

Saturday, 3 November 2007

Changtian Plastic & Chemical Limited

(IPO booth at Raffles Place. A very crowded week at Raffles Place for IPO booths)

Changtian Plastic & Chemical Limited ("Changtian") is engaged in manufacture and sale of adhesive tapes, release papers, BOPA films.

Public - 5m shares at $0.47. closing on 6 Nov
Placement - 210m shares
Manager - Boulton Capital
Underwriter - UOB Kay Hian

FY 06:
Sales: $107.59m
Net profit: $29.676m
Net margin: 27.6%

FY07: Projections
Sales: $140m
Net profit: $40m

No. of shares = 660m. EPS 2007 projection = 6.06 cents
EPS 2008 projections x 30% growth = 7.88 cents

Personally i dont really like this company. It reminded me of Luxking and CHT. Luxing has a lousy net margin of 5% and is trading at around 5-6x PE and is still 25% below its IPO price. CHT is only 12% above its IPO price , trading at 5-6x PE with net margins around 20%. While at market cap of > S$300m verus $141m for CHT and $38m for Luxking.

If i used 2008F EPS projections and a slightly higher-than-peer valuation band of 8x-10x PER due to its better margins, the fair value range is 63 cents to 78 cents, thus giving this stock a more than 30% upside from its IPO price.

Although it will be tough to get the IPO shares from the public tranche, I will sell on the first day if i get this since i dont really like the industry. Good luck!

Thursday, 1 November 2007

Cacola Furniture International Limited

(IPO booth at Raffles Place. Unlike China Hongcheng, it never showcase its products)

Cacola Furniture International Limited ("Cacola") designs, manufactures and distributes a wide range of modern- style home and office furniture in the PRC. This is an interesting sector to be in right now in China as the 'middle-class' in China start to get more affluent and they want to invest in good apartments and decorate their homes with nice furnitures.

Public offer: 4.5m shares at $0.32
Placement: 114.5m shares
Manager: Boulton Capital Asia
Underwriter and Placement: CIMB

The Company has been growing at >25% annually in top and bottom line for the last 3 years. Based on the Q107 growth over Q106, it is likely that the revenue for this year will likely cross the S$100m and net profit will cross the $20m mark. My forecast is that sales for 2007 will range between $107m to $120m and net profit will range between $18m to $22m (may surprise on the upside). Based on the post-IPO share cap of 345m shares, the EPS will range from 5.2 cents to 6.4 cents.

The peers listed in Singapore includes: HTL (not exactly similar space) trading at 6x historical, Man Wah (more similar) trading at 13x historical and Koda (not exactly similiar) trading at 10x historical. I will give it a fair value of 8x-10x PE conservatively for China Play and that will give Cacola a fair value of between 42 cents to 64 cents based on 2007 EPS estimates. At 42 cents, it represents a upside which is more than 30% from the IPO price.

What may possibly derail the "IPO stag" will be:
(1) Large placement float of 114.5m shares
(2) Lack of support from CIMB and investors post listing (see share price of China Hongcheng today which is below its IPO price)
(3) Sentiments turning sour on the stock market.

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