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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).

1 comment:

Nelson said...

I think I would not use SGD/USD 1.4 as the rate since the average to date is closer to 1.51. Moreover, I would assume the annual turnover more than twice the half year result. Otherwise, the growth would be a rather unimpressive +20% for past year. To make the long story short, given the rather disappointing debuts for the past 2 UOBKH IPOs, I will make a more conservative valuation. My EPS estimate is from 0.250-0.280.

My TP will be around 0.260-0.300 for about PE 10.5x-12x.

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