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Wednesday, 31 December 2008

Happy New Year

Here is wishing all readers a Happy New Year. Hope 2009 will bring you and your loved ones happiness, good health and wealth.

Monday, 24 November 2008

Otto Marine Limited

Finally i have an IPO to write about... the last IPO China Kunda was more than one month ago on Oct 9, 2008... the IPO market has been dead for a long while!

Otto Marine Limited is offering 235,295,000 shares at $0.51 per share (206.045m New shares and 29.25m vendor shares). The Company is an offshore maring group engaged in shipbuilding, ship repair and conversion and ship chartering. The revenue for FY2007 is S$314 million and net profit was S$41.9 million. The IPO will close on 26 Nov 2008 at 12pm and list on 28 Nov 2008. 3 cornerstone investors will subscribe for 146.234m shares (or 62% of the offering). Only 1m shares will be offered to the public, which make this public tranche "for show" as the underwriters have no choice since the public sentiments for IPO is really weak at this juncture. It is really amazing that the IPO can go through since this is really a big float at S$120m raised and it is a good sign that the IPO is able to attract key cornerstone investors. It is a vote of confidence by institutional investors to this Company. However, do note that there is no moratorium on the cornerstone investors.

At 51 Singapore cents, the IPO is priced at a historical PE of 14.36 (EPS of 3.55 cents for FY2007 based on fully diluted basis using the enlarged share cap). The first 5 months EPS is 2.77 cents (fully diluted basis). Assuming full year EPS is 6.65 Singapore cents for FY2008, the IPO is priced at 7.67x PE.

Assuming a 25% growth in FY2009, the EPS will grow to 8.3 Singapore cents. Most of its peers are also trading at single digit PEs and I would say the issue is fairly priced for the IPO. Assuming a PE fair value of 5-7x PE for FY2009, the fair value will be between 42 cents to 58 cents. The presence of institutional investors like Standard Chartered Private Equity does bode well for this Company as they typically have a longer investment horizon of 3 to5 years.

Tuesday, 7 October 2008

SGX listing criteria

This is an article that appeared on the Business Times today on the things to consider before launching that IPO. Since this is a blog on Singapore IPOs, might as well post it here since not much IPOs to write about these days. kekeke. As you can see, to list on the Mainboard of Singapore, you need to have cumulative (1) pre-tax profits of S$7.5m over the last 3 years with at least a S$1m profit in each of the 3 years OR (2) Cumulative S$10m profits for the latest 1 or 2 years OR (3) market cap of at least S$80 million. As for listing on Catalist, just find a sponsor will do, like what that Artivision has done...

Friday, 3 October 2008

China Kunda Technology Holdings Limited

It has been a bleak month for IPOs worldwide, not just in Singapore. Basically, the underwriters will not launch any IPOs unless the Company, IPO consultants and pre-IPO investors can find their own 'anchor placees'. One of my pre-ipo investment was still "stuck" in the MAS Opera as the anchor was unable to 'furnish the cheque' needed.

China Kunda is offering 95.284m shares of which 67.2m are new shares and the rest are vendor shares. China Kunda is a provider of precision moulds, plastic injection parts, in-mould decoration products to the electronics, electrical, automobile and specialised devices industries. The market cap post-listing is S$68.8 million. IPO will close on 7 Oct at 12pm.

Unaudited 9 months sales for 2008 is HK$76.55m and profit after tax HK$39.448m. Assuming the sales are evenly spread out, the full year profit will be HK$102m and net profit will be HK$52.6m and based on 320m shares, the EPS will be 16.44 HK cents (or about Singapore 3.04 cents). Based on the IPO price of 21.5 cents, it is valued at 7x PE. Frankly, under such economic climate, i cant foresee the company to do better in 2009 than in 2008, perhaps that is one reason why it has to list NOW intead of postponing the IPO.

Pre-IPO investors are getting a 50% discount and most likely they are also helping to ensure the IPO is "launched" successfully. It is also very rare to see such a young CFO being appointed as executive director of the Company as well.

My view is that the IPO is fully valued with some many S-chips trading at 3-5x PE currently, it makes no sense to invest in this Company based on the IPO price. Investors should be able to get in at cheaper prices post listing. Avoid.

Wednesday, 27 August 2008

Trump Dragon Distillers Holdings Limited

Finally i see a more interesting Chinese company listing in Singapore that is not in the shoes, fabrics, fibre, water sectors. I think this is the first time a wine distiller is listing on SGX but under such current sentiments (where Qianfeng closed 27% below its offer price on its debut today), the IPO will unlikely be able to attract much interest and will most likely open below water. I dont think even Emil Chao can offer much help to overcome this bearish sentiment and tanking share price...

Trump Dragon Distillers Holdings Limited ("TD") is offering 156,250,000 ordinary shares at S$0.31 comprising 125m New Shares and 31.25m Vendor shares. 3.25m shares will be via public offer and the rest through the placement. The IPO will close on 3 Sep 2008 at 12pm.

TD is in the business of wines production "白酒" (extra high alcoholic content kind). Revenue for FY 30 June 2007 is RMB 539 million and net profit is RMB 86 million. 1HFY08 sales increased by 43.7% over the same period last year to RMB 355m and net profit increased by 166% to RMB 80m. As such, my projection for the FY ending 30 June 2008, the sales is likely to be RMB 775m and the corresponing profit will be around RMB 174m based on the better margins of 22.5% achieved in 1H2008. In this regard, EPS for FY2008 should be around Singapore 5.568 cents and that translate into a IPO valuation of 5.56x PE. The market cap is S$193.75 million.

Pre-IPO investors converted at 50% discount and the cost is around 15.3 cents. In the longer term, assuming EPS continue to grow by another 20% in FY2009, the EPS will be around Singapore 6.68 cents. If the fair value PE range of 4-6x, the fair value will be between 27 cents to 40 cents.

My personal view - I dont like Chinese spirits and it can be quite bad for health if drank in excessive quantity. This industry is somewhat like the "sake" industry in Japan where there are many brands and it is very fragmentated. In addition, the mineral water used in the production is very important and you never know what pollution might do to the water from the 2 wells that are used in the production of this spirit. I will give it a 1 chilli rating and avoid this IPO. In any case, the track record of the IPO manager for its past few IPOs doesnt help... (blame it on the poor market sentiments :P)

Saturday, 23 August 2008

Qualitas Medical Group Limited

Qualitas Medical Group Limited ("Qualitas") is issuing 22m New shares at $0.25 per share comprising 1.1m shares via public offer and 20.9m shares via placement. The Company was established in 1997 and is a leading private healthcare services provider in Malaysia. The IPO will close on 28 August 2008 at 12pm.

Revenue for FY2007 is RM 57.7m and net profit is RM 6.3m. From FY2005 to FY2007, the revenue increased from RM 51.9m to RM57.7m but the net profit has actually declined over the same period from RM 6.7m to RM 6.3m. This somewhat indicated a trend of small, gradual growth with declining margins. Qualitas is listing at the historical PE of 12.9x based on the fully diluted no. of shares. Based on post-ipo shares of 134,684,221 shares, the market cap of Qualitas is S$33.7 million.

Qualitas must have studied the Healthway IPO very closely. Healthway is now trading at a more 'reasonable' valuation of 9.16x PE (historical) at current price of $0.12 (a drop of 66% from its IPO price of $0.36) and there is no vendor sale for Qualitas.

Unless you are very bullish about the Malaysia healthcare sector in the next 3 years, my view is to give this IPO a miss until there is a clearer picture of its expansion plans and execution in India and the region. 1 chilli for now.

Tuesday, 19 August 2008

Qian Feng Fabric Tech Limited

Not another "fabrics and nylon" company again?!.... it seemed like the IPO consultants are running out of ideas and can no longer find more 'interesting' companies to list in Singapore. C&G Industries, China Sky, Li Heng, , China Fibretech, Zhongguo Pengjie Fabrics, to-be-listed Qian Feng... (somewhat similar to the shoes situation.. China Hongxing, China Sports, China Eratat, soon-to-be-listed Sports Asia) and i can tell you the reasons later.

Due to a new ruling by CSRC in China some time back, Chinese local PRC companies are no longer allowed to be listed overseas unless they are already restructured prior to the ruling. All overseas listing must now get the approval from CSRC but as of todate, no new PRC companies have been approved for overseas listing. As a result of this new ruling, the pipeline of companies that are coming onboard in Singapore are slowing down and drying up. As most of the 'restructed' (already WFOE) companies can be found in Guangzhou/Fujian province, all the IPO consultants from Singapore are now heading towards Xiamen to look for deals. As a result, you can see companies from the simliar sector from the same region all flocking to Singapore (as in the fabrics & shoes companies). Ok, now back to business...

Qian Feng Fabric Tech Limited ("Qian Feng") is offering 100,565,208 New Shares and 22,434,792 Vendor Shares at 20 cents each of which 1m is to the public and the rest via placement. Qian Feng is an integrated manufacturer of quality functional knitted fabrics. Its products include fabrics used in garment and apparel, shoe, luggage and bags. Its revenue for FY 2007 is RMB 326 million and net profit is RMB 86 million. The offer will close on 25 Aug 2008 at 12pm. The market cap is S$98 million based on post ipo shares of 490,002,148 shares.

There are 2 tranche of Pre-Ipo investors, the 1st tranche invested in Dec 2007 paid 10.4 Singapore cents (around 48% discount to IPO price) and 2nd tranche invested in Jan 2008 paid 15.6 cents (around 22% discount). However, the entire pre-ipo investors also received S$1.4m as cash compensation based on the investment agreement. In this regard, the pre-IPO investors cost is around 10 cents per share on average (50% discount).

The audited EPS for FY2007 based on post-ipo shares is Singapore 3.48 cents and that translate into a historical PE of 5.7x. Assuming the EPS for FY2008 continue to grow by 25%, the EPS will be Singapore 4.35 cents and that translate into a PE of 4.6x.

China Sky and Li Heng is trading at 4.3x and 4.7x and China Fibretech is at 6.6x PE. Assuming a fair value of between 4-6x PE under such depressed markets, the fair value range is 17.5 cents to 26 cents. Qian Feng is fairly priced for this IPO and will not provide significant upside. Investors might as well stick to proven and bigger companies like Li Heng and China Sky.

Sunday, 17 August 2008

Hai Leck Holdings Limited

Hai Leck Holdings Limited ("Hai Leck") is offering 85m new shares at $0.26 each of which 4.5m shares will be via public offer and the rest via placement. The IPO will close on 26 Aug 2008 at 12pm. Hai Leck is an integrated service provider of scaffolding, corrosion prevention and insulation works mainly for the oil & gas and petrochemcial industries.

Revenue for FY2007 is S$62.7m and net profit is S$7.7m. 1H2008 revenue is S$33.6m (increase of 17% over 1H2007) and 1H2008 net profit is S$5.9m (increase of 127% over 1H2007).

Hai Leck is one of the rare companies which i credit for showing the EPS based on the post-ipo no. of shares. Many prospectus avoided showing this EPS to paint a more attractive picture for investors. The EPS post IPO for FY2007 is 2.4 Singapore cents and 1.8 cents for 1H2008. The market cap based on IPO price of 26 cents and 325m shares is S$84.5 million. Assuming the company net profit for 2008 is twice of 1H2008 results, its EPS will be 3.6 Singapore cents. Based on the IPO price of 26 cents, Hai Leck is priced at 7.2x forward PE.

Based on its prospectus, its listed customers include Rotary and Hiap Seng and its listed competitors include See Hup Seng and CWT Limited. Based on the post-ipo market cap, its size is closer to Hiap Seng and See Hup Seng. In any case, its listed peers are trading at between 6x to 10x PE. In this regard, Hai Leck is fairly valued at its IPO price and its fair value will range between 22 cents and 36 cents.

The strong outlook for the oil and gas sector in Singapore will most likely ensure its profitability for the next 1-3 years but as IPO is fairly priced, there is really not much upside in the near term and thus the 1 chilli rating.

Thursday, 14 August 2008

Tritech Group Limited

Tritech Group Limited ("Company") is offering 36m shares at 20 cents per share (30m New shares and 6m Vendor shares) for sale at IPO of which 35m shares will be via placement and 1m shares through the public tranche. The Company is to be listed on Catalist (not sure why it is not going for the mainboard but i believe it is due to a series of litigation suits mentioned on page 141 of the prospectus which obtaining a mainboard clearance will take a much longer time, although it seemed that the Company has all the insurance in place to limit the losses)...and the IPO will close on 19 Aug 2008 at 12pm.

The Company is in the 'construction-related' sector in the ground and structural engineering services. The revenue for FY 2008 is S$31.3m and the net profit is S$7.3m. The NTA post-ipo is 9.17 cents and the EPS (post-ipo and post service agreement) for FY2008 is 3.39 cents and based on the IPO price of 20 cents, it is priced at 5.9x historical. The market cap is S$39.2 million.

The Company will be a tightly held company with 81.63% of its shares held by Tritech International and Tritech International is in turn held by 4 individuals and one company. As mentioned on page 141, there are a series of litigation law suits which investors should be aware of as they may have an impact on the Company (although any significant losses seemed to be covered by the insurers).

While the Company has been very profitable in FY2008, personally, I dislike the construction sector and continue to avoid this sector as it is cyclical in nature and 'difficult' to estimate the future earnings unless we have the visibility of the contracts. Assuming a 20% growth in EPS, the EPS for FY2009 will be 4.068 cents. Based on valuation of 6x, the fair value will be around 24 cents but investors will have to give a discount to this company for its low market cap and liquidity. I will avoid this counter under such negative IPO sentiments and give it a 1-chilli rating.

Sunday, 10 August 2008

Artivision Technologies Ltd.

The Company is principally engaged in the development and provision of video managment products and solutions. The Company is offering 75m New Shares at $0.20 each to be listed on the Catalist. The Company generated sales of US$277,217 and made a loss of US$3.6m for FY2008 (31 March 2008).

Algotech Holdings Ltd (owned by the founders, effective cost is 0.23 cents), Tembusu Growth Fund Ltd (effective cost is 8.22 cents and 45% owned by Andy Lim, husband of Minister Lim Hwee Hwa and substantial shareholder of AdvSCT) and Mlmzar Holding Ltd (effective cost 13.30 cents) will collectilvey own around 53.9% of the Company post-ipo. The market cap is US$95m. David Loh and Han Seng Juan, the top stock brokers in Singapore also hold stakes of 3.53% each in this Company post IPO. All the shareholders have undertake not to sell their shareholdings in the Company for a period of 12 months post its listing.

It is ridiculous to note that the directors (or co-founders) and some executive officers are paid large salaries between $250k to $500k when the Company is not even revenue-generating yet and that is the main reason behind the losses for FY2008. While it is common to receive share options in lieu of cash, it is hardly common to receive huge cash when the Company is still not successful yet.

Frankly i dont think the technology is anything impressive. There are many companies globally that are engaged in this technology and some can be found in Israel and in Taiwan. The key issue will be Execution and sales ramp up. In my personal opinion, the risk of investing in this Company is high and can be rewarding only if sales can take off in a meaningful way. This company is ground-breaking in a sense that it is listing on Catalist with such little revenue (less than US$1m) and a larget loss (US$3.6m). I will also give it a ground breaking rating of zero chillis. Avoid this IPO.

Monday, 4 August 2008

Zhongguo Pengjie Fabrics Limited

Zhongguo Pengjie Fabrics Limited is offering 88.8m new shares (nice no.) in its initial public offer that will close on 7 Aug 2008 (12pm) of which 2m shares are for public and the rest via private placement. (Finally we see a company that is not selling vendor shares).

The Company did not bother to set up an IPO booth at Raffles Place so no photograph of it this time. The Company specialise in the manufacture and production of yarns and fabrics and its products are sold mainly in PRC to apparels manufacturer. (Not another yarns and fabrics company?!). Investors may want to take note that the IPO is being advised by Omega Capital Limited which was recently barred by SGX from handling IPOs until it can get its act together. This IPO must be one of the remaining few IPOs managed by them.

The IPO is priced at 23 cents per share and is priced at 6.27x FY2007 PE. The market cap post-ipo is S$81.4 million. Pre-IPO investors got in at 19.1 cents and were not allowed to sell any vendor shares, so i think the pre-ipo investors must have gotten in during the "peak cycle" in July last year. The Manager's asset management firm is also a pre-ipo investor.

The sales and net profit for FY2007 is RMB 486m and RM67.2m respectively. Assuming net profit grow by 20% into FY2008, the net profit will be RM80.64m. Based on Post-IPO shares of 353.8m shares, the EPS is RMB 22.8 cents or Singapore 4.56 cents. At the IPO price of 23 cents, it is priced at 5x PE.

The peers listed on SGX includes C&G Industrial, China Sky and Li Heng. C&G just announced a poor set of results and the price gapped down 25% today. It is trading at 2.5x rolling PE and below its NAV right now. China Sky is trading at 5.13x rolling PE with S$680m market cap. Li Heng is trading at single digit 6x historical PE and is a billion dollar company. With valuations so low for bigger and more established company, Zhongguo Pengjie is just one of the many small fabrics SMEs in China. Investors who like this sector will be better off investing in China Sky and Li Heng instead. C&G slower-than-expected growth for Q1 might be an indication of slow-down and consolidation in this sector. Give this counter a miss.

Thursday, 31 July 2008

1000 shareholders

"The SGX also wants to scrap a 40-year-old rule that requires a newly listed
firm to have at least 1,000 shareholders. It proposes that the limit be cut to
500 investors. " - Straits Times 31 July 2008

SGX is proposing a new listing rule whereby IPO aspirants only need to ensure they have 500 shareholders at the point of listing instead of the current 1,000 requirement. During the bull run, this requirement seems to be a 'non-issue' but during current stale market sentiments, this rule seemed to be a very 'heavy burden' for IPO managers, underwriters and companies applying for listing. How do they get 1,000 people to subscribe for the shares when the market sentiment is poor (like now) ?!

Rationale behind the 1,000 shareholders.

Let's try to understand the rationale for this magical 1,000 shareholders. I had a discussion with an experienced IPO manager and understands that this 1,000 shareholders requirement in only applicable at the point of listing because no one can ensure how many shareholders there are post-listing as so many shares changed hands after a company is listed. In my opinion, the 1,000 shareholders listing requirement is to ensure that the shares are properly distributed so that it is more difficult for any one to corner the stock or control the prices post-listing. If you remember the mid-continental IPO saga, the share price experienced a sharp ramp up post-listing as 90% of its shares were placed with 5 shareholders. Even the then-DPM Lee has to answer queries with regards to Mid Continental saga in the parliament. As such, the motive behind the 1,000 shareholders is a good one, however, this listing criteria may prove to be a tough one during the bad times.

What do underwriters do to meet this 1,000 shareholders criteria?

As this is a very sensitive topic, i will not mention the names of the underwriters here. Let us first understand the IPO process for this part of the story. Before any listing, the underwriter and IPO managers will source for 'strong hands' to place out the shares to. Then they will place out the remaining shares to the clients who are interested to apply for the shares. After which they will then launch the public tranche of the IPO to ensure they meet the minimum 1,000 shareholders criteria. If they can meet this 1,000 criteria during the private placement tranche, they will be even happier.

There are a few ways in which the underwriters try to meet this criteria:

1. IPO club. Some firms will have IPO clubs to place out the shares to clients. Members of the IPO club have to 'eat' the shares in good times and bad and have to take the shares no matter if the issue is good or bad for a 6 months or 12 months period. During this time, any IPO that is underwritten by the firm will be placed out to IPO club members.

2. Large brokerage firm. Some IPO managers prefer to work with large brokering houses because of the huge clientele. It is easier for a large brokerage firm to ensure the 1,000 shareholders criteria is met.

3. Sub placement. Sometimes small brokerage firm may not have the capacity to meet this criteria, so they will 'sub out' the placement tranche to a bigger firm.

4. Special incentive fees. Dont be surprised if you hear of people being approached to apply for 1 lot of the IPO public tranche. They will give you a 'reward' to cover your expenses for the trouble to apply and sell the shares and to cover any potential losses.

5. Public tranche. The IPO tranche is another way to ensure they meet the 1,000 shareholders criteria. And to ensure they meet this "1000 shareholders" rule, an investor cannot take the private placement shares and apply for the public tranche shares as well so that there will not be 'multiple application' or double counting.

Let's see if the newly proposed minimum 500 shareholders rule will be push through. While it is easier to push through the amendments during bad times, dont be surprised if retail investors start to bang the table again and question about 'fairness' of the IPO allocation when they find it so difficult to get the IPO shares during a hot market and wants the "thousand" rule to be "reinstated". :P

I have started to update my personal trading blog again. Subscribe for the email if you are keen to know how I trade, invest and manage my personal money but do take note that these are my personal trades and are usually 'one or two days' later than the actual trades. Do not mimic the trades as losses are common in trading but hopefully, it may help you in one way or another in your path towards financial freedom.

Sunday, 20 July 2008

Kencana Agri Limited

Kencana Agri Limited ("Kencana") is a crude palm oil producer in Indonesia. Its integrated plantation operations comprise plantations, palm oil mills, bulking facilities and logistic services and renewable biomass power plant. Its revenue for FY07 was US$69.3m and its net profit was US$39.2 million.

There seemed to be much growth potential ahead as it has a huge land bank and that 50% of its palm plantation are still not matured (< 3 years) yet. The shares will be offered at $0.305 per shre and the total no. of shares post IPO will be 998m. The market cap will be US$223.3 million.

It is "amazing" that CIMB being one of the placement agent for 49.75m shares, downgraded the sector and several palm oil stocks like Wilmar, Indoagri and Golden Agri when Kencana's IPO was launched. I am wondering how CIMB placees will feel when they receive the Kencana shares!! "Why do you place out the shares to me when you downgrade the sector ah and the palm oil stocks ah?!"...

Assuming the EPS grow by 25% for FY2008 (which i think is still possible), the net profit for FY2008 will be US$49 million. EPS will be US$49m/998m = US 4.9 cents or Singapore 6.6 cents. At the IPO price of 30.5 cents, the IPO is priced at a forward PE of 4.6x.

Based on the information from Shareinvestor and as of 20 July 2008, Golden Agri is priced at 4.1x historical, IndoAgri 17x, Wilmar 29x, First Resource 19x. (Sorry... I am too lazy to look for the forward PE figures).

Valuation wise, i think Kencana is priced attractively relative to its peers and with potential for growth in the next few years given its relative younger plantation and underutilized land. However, with all the bearish sentiments affecting palm oil stocks, it will take a big effort to sustain the price above its IPO for the short term. The actual IPO price of 30.5 cents was way below its original indicative pricing between 35 to 40 cents when DBS first launched its book building exercise in June. However, over the longer term, it may prove to be an attractive acquisition target for the other bigger plantation firms if it continues to trade at such cheap valuation.

For short term investors, i will avoid this IPO but may consider it if it falls to ridiculously low levels. My gut feel is that Wilmar (being one of its major customer), is likely to take a stake in the company via placement tranche. However, i am not sure if its competitors like IndoAgri, Golden Agri, First Resources will be invited to the party. It will certainly make this IPO more interesting if the rivals are allowed to take a stake in it.

Tuesday, 1 July 2008

Heng Long International Ltd

Heng Long International Ltd is offering 68m New shares at S$0.34 per share with 3m for the public and 65m via placement. Heng Long started in 1950s and is one of the world's 5 top-tier tanneries. (I never knew that until today. hahaha. A crocodile dundee in our own backyard! Don't play play..) Heng Long sources, tans and processes raw crocodilian skins into finished leather.

Revenue for FY2007 is S$66.23m and net profit is S$11.142m. The NTA is 25.9 cents post IPO and EPS based on post-ipo shares is Singapore 4.157 cents. At the IPO price of 34 cents, the issue is priced at a historical PE of 8.2x. The market cap is $91.1m based on the IPO price.

Actually i quite like this unique business with not many similar competitors in Singapore and the promise to pay 30% of the net profit for FY2008 as dividends. However, what i dont really like is the 'family-style' management team. The 2 Managing Directors are brothers and their wives are also helping out in the business. One of the MD's spouse has a title of Payroll Manager and the other has a title of Treasury and Corporate Affairs. All 4 of them used to make between $250,000 to $499,999 per annum for FY 2007. While you can do that as a private company, it is really good to see that the wives have the discipline to 'take a pay cut' to below $250,000 per annum for FY2008. Frankly, a good Financial Controller will be able to take on the functions currently undertaken by both the spouses. In addition, what is the point of having a payroll manager when you already have a HR Manager and a Financial Controller?!

I would have given it a 2 Chilli rating if not for the current bearish IPO sentiments and the 'family-run' management team. While i am unable to predict FY2008 performance, a 20% increase in EPS and a PE valuation of 8 to 10x will imply a fair value of 40 cents to 50 cents.

Sunday, 29 June 2008

Healthway Medical Corporation Limited

Healthway Medical Corporation Limited is offering 135.5m shares (95.5m New shares and 40m Vendor shares) at 36 cents each. The Company is one of the largest healthcare outpatient service provider in Singapore. (This is like the Raffles Medical Group when it just started out, eventually, it will want to set up its own specialty practices and hospitals to improve the margins.)

Frankly to me, Singapore is already a small and saturated market and the listing is 'inevitable' to tap new capital to expand overseas. As you can see from the revenue, it has grown from S$66.6m in FY2005 to S$84.6m in FY2007. Net profit increased from S$13m to $16.6m over the same period. The joke is that the Company has a pro-forma Net Tangible Liability of 4.02 cents and a net asset value of 9.21 cents post IPO dilution based on 31 Dec 2007. The EPS is approximately Singapore 1.20 cents (assuming service agreement is in place and based on outstanding shares post-IPO).

At 1.20 cents EPS, the IPO is priced at 30x historical PE! Assuming EPS grow by a very "aggressive" 20%, the EPS for FY2008 will be Singapore 1.44 cents and that will translate into a PE of 25x.

For the year ending 31 Dec 2007, Raffles Medical Group has revenue of S$168m and net profit of S$35m. The EPS was 7.36 cents and as of 29 June 2008, RMG is now trading at a valuation of 20x historical. It took RMG a few years and i believed the earnings only 'spike up' after the Raffles Hospital was set up. In my view, the execution of Healthway is still a big question mark and at this IPO valuation, investors are better off parking there money in Raffles Medical Group. In addition, some accounts of the Companies in Healthway are qualified by the auditors... the market cap of Healthway based on the IPO price is $487.8 million (w0w...).

My view is forget about this IPO and put your $ to better valued stocks elsewhere. If you really must invest in this Healthcare sector, you may want to do a more indepth analysis on Raffles Medical Group.

Wednesday, 25 June 2008

China Fibretech Ltd

China Fibretech Ltd. is selling 89.1m new shares and 44.55m vendor shares in its IPO at 21 cents per share. Only 2m shares are available for public offer and the IPO manager did not even bother to set up an IPO booth at Raffles Place. I understand from a broker friend that he has been asked to 'help subscribing' for 2 lots of the IPO public tranche to make up the minimum number of shareholders required by the listing regulations.

The Company was principally engaged in the provision of the dyeing and post-processing treatment services for cotton, polyester and mixed knitted fabrics.

I have no idea why the Company is still using its 9 months results for FY 2007 in its prospectus. It should have used the full year results in its prospectus. The market cap based on 445,509,625 shares at 21 cents is around S$93.6 million. The Company intends to distribute 30% to 40% of FY08 profits and 20% to 30% of FY09 profits as dividends.

As of 30 Sep 2007, the company's EPS is around Singapore 3.39 cents (increase of 59%). Assuming the full year EPS for FY07 increased by the same percentage, the EPS will be Singapore 4.62 cents. At the IPO price of 21 cents, it is priced at 4.5x 2007 PER.

The issue is priced competitively at 4.5x 07 PER. Assuming EPS grow by 20% for FY2008, the EPS will be Singapore 5.54 cents and the PER will be around 3.8x and this valuation is probably in line with China Sky.

The downside is limited based on the attractive valuation in which it is priced but i am giving it a 1-chilli rating probably because of the weak market sentiments and lack of post-ipo support. I am vested through the placement tranche (I need to show some support in good times and bad times)......let's see how it goes... looking at the trend of the recent IPOs, it should open around 10% to 20% lower than its IPO price.

Monday, 23 June 2008

Mencast Holdings Ltd.

Mencast Holdings Ltd is offering 22.5m new shares priced at 28 cents per share of which 1.5m shares will be offer via public and the remaining through a private placement. The Company manufacture and supply sterngear equipment and provide sterngear services for a wide range of commercial vessel-applications.

Revenue increased from S$11.65m in FY05 to S$18.8m in FY07 but net profit improved from S$707k to S$4.8m in FY07 indicating a strong improvement in net margin from 6.1% to 25.5% over the last 3 years.

Based on the IPO price, the market cap is S$41.3m. An ultra small cap company on Catalist. The EPS for FY2007 bsaed on post-invitation shares of 147.5m is 3.27 cents. The Company sold itself at a valuation of S$24m to pre-ipo investors on 30 May 2008 (or 19 cents per share), it is amazing that within a short span of less than one month, it can repackaged itself to sell to the market at 28 cents per share at a significantly higher valuation. The identity of the pre-ipo investor was not disclosed as it holds less than 5% and is not selling any vendor share. Personally, i dont like such 'restructuring' within a short span of time. There are several possible reasons for doing this pre-ipo transaction - (1) Owners want to cash out but didnt want to sell vendor at IPO for fear of depressing the market; (2) Underwriters want to find some strong hands to anchor this IPO but anchor will only come in a lower price as he/she will be subject to 6 months moratorium. (3) Special arrangement with underwriters, etc. I have no idea what the reasons are but certainly never like this kind of 'restructuring' as i am not the one who benefited from it but i would have preferred if the identity of the pre-ipo investor was disclosed. :P

It also seemed amazing to me that the margins can improve so strongly over the last 3 years and personally, I would like to adopt a 'wait-and-see' attitude on the sustainability of this margins in the next few quarters. I would rate this a 1 chilli counter and observe this company for a longer while.

Sunday, 15 June 2008

Combine Will International Holdings Limited

Combine Will ("CW") is offering 88 million new shares at S$0.23 per share of which 5m will be for public and the rest via private placement. The Company is based in Dongguan, Guandong Province and there are 3 main business segments - ODM/OEM of plastic and die-cast products, moulds and tooling and machines sales. The IPO will close on 19 June at 12pm and will commence trading on 23 June.

Audited revenue for FY06 is S$174m with net profit of S$5.47 million. For the 9m ended 30 Sep 2007, the sales is S$153.5m and net profit is $10.5m. It is amazing that the Company was unable to disclose its full year audited figures for 2007 as it is already the June period, almost close to the end of the statutory reporting for companies with financial years ending on 31 December.

Based on the post IPO shares of 328m shares, the market cap is around $75.4 million. This is really a small cap company. Assume a full year profit of S$14m to S$17m, the EPS will range between 4.3 cents to 5.2 cents. At the IPO price of 23 cents, it is trading at the PE range of 4.4x to 5.3x, which is typical of small S-chip stocks in Singapore.

I will avoid this counter for now due to its small cap status, competitive segment and poor IPO sentiments.

Thursday, 12 June 2008

A test of investors' will?

It is amazing that HL Bank is launching its 2nd IPO of June, Combine Will International Limited. Frankly, the English name of this company really sounded like one that is 'bought off-the-shelf' and is really 'testing' the will of the market.

The performance of the recent IPOs have been lacklustre and i will not be surprised if Combine Will trades below water post its IPO. On another IPO, I was informed by my DBS broker that it is no longer underwriting for China Fibertech and i wont be allocated the IPO shares and i heaved a sign of relief.

Let me do a write up on Combine Will when i managed to hold of that hard copy prospectus... (too lazy to read the online version...)

Sunday, 8 June 2008

Sino Construction Limited

Sino Construction Limited was established in 1998 and is principally engaged in building construction and civil engineering activities in Daqing City, the PRC. The Company is offering 152.698m shares where 6.398m shares are offer for public and 146.3m shares are for placement at 39 cents each.

I never like the construction sector. If this sector is already considered "dirty" in Singapore with all the under-table bribery and gifts, how "clean" can it be in China. In addition, this Company is registered as a Class II, that is, it can tender for projects up to RMB 500m (or S$100m) and personally i think that is on the 'low' side. In addition, it is only a smallish construction in a small city of Daqing in the province of Heilongjiang. The net profit for FY2007 is RMB168.5 million. The EPS post IPO is RMB 28.25 cents or Singapore 5.65 cents. The NTA is only 12.2 Singapore cents. Pre-IPO investors came in at 23.4 cents (versus the IPO price of 39 cents) and most of them are selling out half of their shareholdings at the IPO.

Assuming EPS grow by 10% in FY2008, it will be 6.2 cents. At IPO price of 39 cents, it is priced at forward PE of 6.3x. I think the issue is fairly priced under such weak IPO sentiments and there will not be any upside. I cant recall any construction firms that are listed on SGX but would consider this Company as fully valued and in a sector that i personally dont like. I will avoid applying for this IPO.

Wednesday, 4 June 2008

Indiabulls Properties Investment Trust

Indiabulls Properties Investment Trust offers investors exposure to the booming Indian economy and to the rapidly growing services sectors. The Trust has an initial portfolio of 2 commercial development properties located in the upcoming business district of Lower Parel in Mumbai.

The Trust is offering 262,483,183 units at between S$1 to S$1.10 for subscription. The projected yield for FY2009 is between 4.7% to 5.1% and 8.9% to 9.8% for FY 2010. For your information, the fiscal year FY2009 is from April 1, 2008 to March 31, 2009. The yield is expected to increase in conjuction with the progressive completion of the projects.

Basically this is an Indian REIT play and a comparable peer on SGX will be the Ascendas India Trust. The market cap of Indiabulls is around S$3.6 billion and that is considerably bigger than Ascendas India Trust. The yield of Ascendas India Trust is around 5.6%.

Bascially i have no comments on whether to subscribe or not as REITs are bascially yield play and valuation of the properties are usually very subjective in nature and there are inherent risks investing in the India market. If this REIT suits your investment appetite and you are bullish on the Indian property/rental sector, then apply for it. Given the current market sentiments and the huge fund raising, let's see if there is adequate appetite this latest REIT.

Tuesday, 3 June 2008

China Taisan Technology Group Holdings Limited

China Taisan is one of the leading manufacturers in the PRC of knitted fabrics used for sports and leisure apparel. Its fabrics are used by reputable apparel brands. It is offering 223.2m new shares and 9.8m vendor shares at 24 cents each. The public tranche is 8m and placement tranche is 225m.

According to the prospectus, if the Service Agreement has been in place from the beginning of FY2007, the net profit after tax would have RMB 182 million. Based on post IPO share base, the EPS is RMB 19.6 cents or Singapore 3.9 cents. At the IPO price of 24 cents, the IPO is priced at historical PE of 6.15x. The growth of this Company has been rather spectacular over the last 3 years. The pre-ipo investors went in July last year and their cost is around 8.76 cents versus the 24 cents.

Assuming profit continue to grow strongly at 50%, the net profit after tax for FY2008 will be around RMB 273m and EPS will be around RMB 29.4 cents or Singapore 5.88 cents. Based on the IPO price of 24 cents, it will be priced at prospective PE of 4.08x. This valuation is rather attractive and in my opinion, downside is limited. Based on the fair value of 6x-8x, the price should be around 35 cents to 47 cents. This IPO should be a stag even under market sentiments based on its valuation alone. Assuming in a situation where profit grow by 30%, the fair value will be between 30 to 40 cents.

Wednesday, 21 May 2008

Pre-IPO deals

I have written an article on Pre-IPO deals here. I think many of us are interested in getting into pre-IPO deals but do not know how to "get in"and where to 'knock the doors'. I will discuss more on this on my personal blog at a later stage and not on this Singapore IPOs blog. I take the opportunity to thank you for your patronage.

Sunday, 4 May 2008

Hisaka Holdings Ltd

The Company is issuing 64m new shares at $0.23 and selling 26m vendor shares. The public will get to ballot for 4.5m shares while the rest of the 88.5m shares will be sold via placement. The IPO will close on 6 May at 12pm and the IPO will be launched on 8 May 2008. Based on the IPO price of $0.23 and post shares of 200.6m, the market cap of the Company will be S$46.1 million.

The company is an automation solutions providers in Singapore and specialise in mechanical motion products. The production facilities are located in Singapore Malaysia and China.

Financial Highlights - Revenue in FY2005 was S$33.7m and grew to $56.5m in FY2007. The net profit grew from S$2.4m to $6.0m in the same period. While the growth is somewhat impressive, the net margin is low at 10%.

While this is a small cap company with so-so profit, it is interesting to note that Mr. Cheng Ee Chew is paid more than $500,000 per year while Mr. Cheng Ee Lieng is paid more than $250,000 per year (before performance bonus for FY2008). The both of them accounted for more than 12.5% of the net profit for FY2007 and being a listed company, i think this high% is hardly justifiable. The independent directors will do well to do a thorough benchmark of the executive remuneration against similar companies.

Assuming profit for 2008 grow by 15%, the net earnings will be $6.9m and EPS will be 3.44 cents. Assuming a fair value PE of 6x-8x, the fair value will be between 20.5 cents to 27.5 cents.

Personally i think the Company is a mediocre company and the profit growth is not spectacular. At the IPO price, it is already fairly valued and with the high executive payroll, my suggestion to long term investors is to give this company a miss.

Sunday, 13 April 2008

China Zaino International Ltd

China Zaino International Ltd claims to be the No.1 backpack company in China with the largest market share of 35.8% in terms of revenue for 2006. The Company designs, develops, manufactures and sells backpacks and luggages under the "DAPAI" brand.

The IPO is managed by Sterling Coleman, underwritten by UOB Kay Hian and DBS. It is issuing 145m shares at S$0.60 each and the offer will close on April 16 at 12pm. The revenue growth figures are pretty impressive with FY2006 revenue at RMB 930 million and net profit of RMB 193 million. Based on the 9 months results for 2007, its revenue was RMB 1.04 billion and net profit is RMB 211 million (growth of more than 50%). It will be pretty difficult to get from the public tranche as 143m shares were for private placement and only 2m shares were for public offering. The Company also intends to distribute >20% of its net profit for the financial years ending 2008 and 2009. This is a decent market cap company at S$567 million post its IPO.

Financial Projections:

Assuming revenue in 2007 is RMB 1.4 billion and net profit is RMB 281 million. The EPS will be around RMB 29.7 cents or Singapore 5.95 cents. Based on IPO price of 60 cents, it is priced at 10x FY 2007 PE.

Assuming EPS for FY 2008 grow by another 30%, the EPS will be Singapore 7.735 cents. Based on the current depressed valuation matrix for S-Chips at 8-10x PE, the fair value of China Zaino will be between 62 cents and 77 cents. Based on the IPO price of 60 cents, it is very close to the lower end of the fair value range. The upside from this Company will come only if there is an upward re-rating of S-Chips in Singapore. Due to the uncertainty in current investment climate, investors will be better off not applying for this IPO as the risk reward is current not favourable.

Saturday, 12 April 2008

China Eratat Sports Fashion Limited

China Eratat Sports Fashion Limited is a "leading" branded sportswear enterprise based in Fujian Province, PRC. It is engaged in the design, manufacture and distribution of sports footwear and sports apparel under the "ERATA" brand. As you can see, the Company has "spared no efforts" in trying to convince the public that it is a "leading" brand. The IPO will close on 15 April 2008.

The Company is issuing 163m shares where 124.88 m shares are new shares and the rest are the pre-ipo vendor shareholders that are cashing out. The genuine pre-ipo investors' cost is around 22.5 cents (versus the IPO price of 30 cents).

The Company generated sales of RMB 286.4m and net profit of RMB40.6m for the FY2007. FY 2007 being 31 March 2007. In other words, the Company had just ended FY2008. The EPS based on post invitation share capital for FY2007 is RMB 9.79 cents or Singapore 1.94 cents. The 1H2008 grew by around 25% in terms of revenue and net profit compared to 1H2007. Assume this growth rate for the full year, FY2008 revenue will be around RMB 358m and net profit will be around RMB 50.8m. The EPS will be around RMB 12.23 cents or Singapore 2.43 cents. Based on the IPO price of 30 cents, this means that China Eratat is valued at 12.3x FY2008 EPS.

Peer Comparison

Revenue for China Hongxing is around RMB 2.87 billion and net profit of RMB 525m for FY2008 (31 Dec 2008). EPS is around 3.6 cents based on DBS research report. Based on today's share price of 61 cents, that imply China Hongxing is valued at around 16.9x PE. However, a premium is warranted as China Hongxing is such a giant compared to China Eratat.

China Sports's estimated revenue for 2008 will be RMB 1.659 billion and net profit will be RMB 222 million. Again this is a much bigger company than China Eratat. The EPS for FY2008 is estimated around 12.8 cents (source: DBS Securities) and at 91 cents today, it is valued at 7.1x PE.


With a bigger and better rival trading at single digit PE of 7.1x, there is no reason for China Eratat to be priced at 12.3x PE and with all pre-ipo vendors cashing out at 33.3% return over their cost, investors would be better off buying the shares of China Sports. China Sports offer better over both China Hongxing and China Eratat. My advice is to avoid China Eratat on valuation basis and dont be distracted by the big IPO booths or Michelle Chia (who appeared at the IPO booths).

Friday, 7 March 2008

Joyas International Holdings Limited

(IPO booth at Raffles Place - compliments from Fergus)

Joyas International Holdings Limited ("Joyas") is principally engaged in the design, manufacture, packaging and sale of metal gift and jewellery products. The Company is offering 1m shares at $0.29 for public and 27.8m shares at $0.29 for private placement. The offer will close on 11 March 2008 at 12 pm.

The profit of 1H07 is flushed with gains from disposals of lands and buildings, which was disclosed on page 46 and 66 of the prospectus. The EPS for 1H2007 (excluding gains from disposals) and using the post-invitation number of shares is 9.93 HK cents. Assuming full year EPS is 20 HK cents (1H07 x 2) or Singapore 3.56 cents.

At the IPO price of 29 cents, Joyas is priced at a historical PE of 8.15x. The market cap of the Company is S$31.1m.

Basically this is a small cap stock and the Company is already fully valued at current IPO price. Avoid.

Li Heng Chemical Fibre Technologies Limited

(IPO booth at Raffles Place - Photo compliments from Fergus)

Li Heng Chemical Fibre ("Li Heng") is offering 400m shares (340m new shares, 60m vendor shares) at $0.80 each. 10m shares will be for the public while 390m shares will be privately placed out. It is amazing that under current sentiments, the vendors are still allowed to cash out at IPO. Closing date is 10 March 08 at 12pm. Market cap is $1.36 billion based on 1.7b shares at IPO price of $0.80. The cost per share to the Pre-IPO investor is around 41.58 cents (versus IPO price of 80 cents).

Li Heng is primarily in the business of manufacturing and selling high-end nylon yarn products in China. The main listed rival on SGX will be China Sky. To get a better feel of Li Heng, let's look at 2006 and 2007 financial results of China Sky:

2007 sales - $449.1m. Net profit - $127.9m. EPS - 16.1 cents
2006 sales - $374.4m. Net profit - $102.8m EPS - 14.3 cents

The financials for Li Heng is as follows:

2006 sales - $338m. Net profit - $95.2m. EPS - 5.6 cents
2007 1H sales - $285.8m. Net profit - $93.7m. EPS - 5.51 cents.

Assuming 2007 full year sales doubled. Sales will be 571.6m and net profit will be $187.4m. The EPS will be 11.02 cents. Based on the IPO price of 80 cents, it is priced at 7.3x 2007 PE. China Sky's share price at the close of March 7 is $1.07, the share price of China Sky is trading at 6.6x 2007 PE.

It appears that China Sky will present a better investment opportunity than Li Heng. My suggestion is to keep your cash at bank and save the IPO application fee of $2. On a longer term basis, assuming a fair value PE of 8-10x, Li Heng's fair value will range from 88 cents to 110 cents.

Thursday, 6 March 2008

Roxy-Pacific Holdings Limited

(IPO booth in Raffles Place. Photo compliments from Fergus)

Roxy Pacific is basically a niche property developer and the owner of Mercure Roxy Hotel. In FY 2006, its revenue is $48.8m and net profit is $5.2m. The IPO details are:

7m shares for Public at $0.30 each.
126m private placement shares at $0.30 each.
Issue Manager: Hong Leong Finance
Closing date: 10 March 2008 12pm.

Revalued NAV per share as of Dec 31, 2006 = 45.39 cents. This is higher than the IPO price of 30 cents. I do have to caution that "Valuation" is a rather subjective matter as it depends greatly on many different factors. In this regard, the revalued NAV may not represent the actual value in a real transaction. Based on the IPO price of 30 cents and post-invitation shares of 636,560,000 the market cap is around S$190.97 million.

The 1H 2007 revenue is $42.4m and net profit is S$7.7m. Frankly it is not easy to do a forecast for a property developer cum hotel operator because the revenue of a property developer depends greatly on the projects on hand and the revenue recognition policy while the revenue from a hotel is fairly stable and depends on the occupancy and room rates. Assuming i do the lazy way of doubling the 1H profits for FY2007, the revenue for 2007 will be around $85m and the net profit will be $15.4 million. EPS will be 2.4 cents. Based on the IPO price of 30 cents, the 07PE is around 12.5x.

Listed competitors on SGX includes Fragrance and Fragrance is trading at a better valuation of 13x 2007 PE as well as a premium to its NAV. If we use Fragrance as a key comparison, it seemed that Roxy is undervalued and there will be further upside if it can trade towards its revised NAV of 46 cents.

Personally i dont really fancy the Singapore property market and will avoid the IPO market for now given the extremely volatile market conditions for both the stock and property markets.

Monday, 3 March 2008

Market Sentiments & IPOs

Last Friday we saw that launch of 3 IPOs, namely Joyas, Roxy-Pacific and Liheng, of which the biggest will be Li Heng. The underwriters tried to launch the IPOs when market was in the midst of staging a technical rebound and improving sentiments; what the underwriters didn't expect was the steep decline on Wall Street on Friday which dampened the mood and sentiments on Monday.

This period is one of the toughest to launch an IPO unless the owners are willing to sell their companies at very low single digit PEs (maybe 3-4x PE) if they want the price to remain above water post the listing. Let see how it goes for the 3 brave ones. I will follow up with a more detailed analysis of the 3 companies in the coming days but unless you are belong to the brave ones, my suggestion is to avoid applying for the IPOs for now. The risk is just not worth the effort.

Tuesday, 19 February 2008

Samko Timber Limited

Samko Timber launched its IPO of 183 million new shares at 55 cents each to raise $100.65 million. The offer was delayed due to stock market volatility and will close on this thursday, 21 Feb 2008. This was a far cry from the original intention to sell those shares at betwen 63 cents to 81 cents.

Placement - 180 million shares at $0.55
Public - 3m shares at $0.55

The offer closed within 3 business days after it was open for subscription on 18 Feb 2008 at 6pm. This very much shows that the placement offer has been fuly subscribed and that Credit Suisse is just waiting for the right timing to launch the IPO.

Financial results:
8 months YTD to 31 Aug 2007: Revenue US$142.5 milion, net profit: US$ 4.5 million. However, this figure will be changed to sales US$216.5m and net profit of US$11.6m for the 8 months if the acquistion of is accounted.

Frankly it is difficult to do financial projections for the timber company. Its results has been rather erratic in the past. The peer listed in Singapore will be Unifiber.

I am too tired to do a detailed projections but i will give this company a miss for now due to the big float. Let me se if my mind can function better tomorrow since i had a few glasses of wine tonight with my ex-colleagues....z.z.z..z

Monday, 18 February 2008

2Y Capital Fund

Dear subscribers of Singapore IPOs,
I have set up another blog to write about my personal investment fund. You can subscribe for the email updates here. I have intentionally keep it separate so that this blog continue to be dedicated to IPO companies that are listing on the SGX. Hope you will find a little value in both the blogs.

Sunday, 3 February 2008

Yongmao Holdings Limited

(a very small IPO booth at Raffles Place)

3.8 million Public Offer shares at $0.35 each
107.75 million Placement shares at $0.35
Manager, Underwriter and Placement Agent: CIMB
Closing date: 19 Feb 2008

Yongmao Holdings designs and manufacture a wide range of towercranes and towercrane components and accessories. You can have a detailed write up at Kleer's blog, thus i wont waste time to repeat the same information.

Q1 EPS based on enlarged share capital is 1.73 cents and using a simple Q1 EPS x 4, the EPS for FY2008 (ending 31 March 2008) will be 6.92 cents. Based on the IPO price of 35 cents, it attractively priced Yongmao at only 5.06x PE. There will be potential upside as the Company is running at close to full capacity and that the proceeds will be used to double its current capacity and the new manufacturing facility will be completed by end of this year. Another good thing which i like is the diversified customer base from differing geographical regions.

I cant think of any similar companies listed on SGX. Tat Hong, one of a substantial shareholder of Yongmao, is trading at around 12-15x PE. Assuming a fair value of around 9-11x, the fair value should range from 63 cents to 76 censts. I think the IPO price of Yongmao is attractively priced for a strong stag. Try your luck at the ATM!

Sunday, 27 January 2008

Centraland Limited

(IPO booth at Raffles Place)

The Company is a premium brand property developer in Zhengzhou City, the provincial capital of Henan Province, which is one of the most populated provinces in PRC. It is principally engaged in the development and sale of residential and commercial properties.

5m Offer shares at S$0.50 each by public offer
240m Placement shares at S$0.50 each.
Issue Manager: Boulton Capital Asia Pte Ltd
Underwriter and Placement Agent: UOB Kay Hian
Closing date: 30 January 2008, 12pm.

It is really hard to value this company just using a prospectus without knowing where the land is located and the future income stream that can be derived from those properties. This is really the first BIG CAP listing on SGX in 2008 where the post market capitalisation of Centraland is worth approximately S$922.5 million based on the IPO price of $0.50!

Audited FY 2006:

Revenue : S$55 million
Net income : S$ 10.8 million

1H FY07:

Revenue : S$29.8 million
Net income: S$ 4.6 million
EPS (post-IPO shares) = 0.19 cents

Assume full year FY07 revenue is $60m, net come is $9.2m, EPS is 0.38 cents

SGX listed peers:

Yanlord Land has a current market cap of $4.8b on SGX and is considered one of the top property developer in China with strong foothold in key cities. FY06: Sales $952m, net income $170m, EPS 11.36 cents.

China Yuanbang has a current market cap of $201 million. FYJun 07: Sales S$67m, net income $15.6m, EPS 3.1 cents.

Sunshine Holdings has a market cap of $158m. FY06: Sales $119m, net income $30m, EPS 3.8c
Landbank 840,000 sqm.

My Comments:

If you are looking at historical financial figures, mostly likely you will come to a conclusion that the Company is overvalued. Its Earnings Per Share is nowhere near Yanlord and is not even as good as smaller cap companies like Sunshine and China Yuanbang. So what you are paying for is for the 'landbank' which Centraland is holding. While i know where the Zhengzhou City is located, i have no idea how much the land is worth. All I can rely on is the valuation from independent valuer CB Richard Ellis. In addition, i have no idea about the earnings from the current projects that are coming on-stream either.

Since i dont know much about the Company (even from the prospectus) and looking at the marco fundamentals where the stock market is very volatile and the Chinese government's measures to cool the China property market, my personal view is to avoid this sector for now.

Tuesday, 22 January 2008

Wee Hur Holdings Ltd.

(IPO Booth at Raffles Place)

Wee Hur Holdings Ltd specialise in construction projects, ranging from new construction, additions and alterations of existing buildings. Bascially we can use one phrase to describe this company - A "Brave" Construction Firm.

2,091,000 Public Offer shares at $0.25
81,558,000 Placement shares at $0.25
Joint Managers: SBI E2-Capital and Phillip Capital
Closing date: 28 Jan 2008 12pm (they should have chosen 8.08 am as the closing time :P)

Once again, i use the word "brave". I definitely hope they are not trying to be the first IPO to be undersubcribed. Basically i have nothing good to say about this industry, so lets start with what i dont like about this sector/company:

(1) Cyclical industry. The earnings fluctuate with the property cycle. If you remember just a few years back, the construction industry is in the doldrums and all the construction firms almost 'died'. If not for the IR and the current property boom, i believe Wee Hur will not have this 'window' to list.

(2) Limited growth. How exciting can this sector be with competitive landscape and rising construction raw materials.

(3) Owners are selling out. Under such market sentiments, even the owners are cashing out by selling vendor shares. I am really surprised the underwriters agreed to it!

(4) Small market cap. With a market cap of only $80.3m, this is one of the smallest construction firm around when you compare to the likes of Chip Eng Seng, Lian Beng and Koh Bros.

(5) Family Biz. As in most construction firm, it is usually a very family oriented business. This may prevent some 'professionals' from joining the firm.

Fair Value:

Lets take a look at the track record of Wee Hur:
FY2004 Revenue: $48.1m, Net Profit: $1.65m
FY 2005 Revenue: $45.8m, Net Profit: $1.57m
FY 2006 Revenue: $80.6m, Net Profit: $2.757m
1H 2007 Revenue: $45.6m, Net Profit: $5.74m

Assuming EPS for 2007 is 1H07 x 2 = 3.6 cents, based on the IPO price of 25 cents, it is trading at a historical PE of 6.9x, which in my view, is reasonably priced. Assuming a EPS growth of 20% for FY 2008, the EPS will be 4.32 cents. Assuming a PE value of 8x, the 'fair value' will be around 34 cents.

Wednesday, 16 January 2008

Does Strict Due Diligence Guarantee A Successful IPO?

This article appeared on Business Times Weekend edition on 12 Jan 2008 which i thought may an a good article to share on my blog in case you have missed it. Personally i like the IPOs from HL Bank and Sterling Coleman.

Does strict due diligence guarantee a successful IPO?

THE Singapore Exchange believes that investment banks which have very strict due diligence processes will tend to bring in better quality companies to the market. This is why it is going to be very selective in qualifying the full sponsors - those responsible for bringing companies for listing on its new board, Catalist. So which of the investment banks have had the best record in the last three years?

Before we go into the detailed results, let's set the stage with some big picture numbers. Just under 150 companies were admitted to the main board of the SGX between 2005 and 2007. For Sesdaq, it was 36. More than half these companies - 56 per cent for the main board and 58 per cent for Sesdaq - underperformed the SES All Shares Index from the time they were listed to Jan 9, 2008.

Now on to the records of the various investment banks. Surprisingly, all the local banks' corporate finance outfits did not have a very good history of bringing better performing companies to the market.

For example for DBS, of the five companies it brought to the main board in 2005, only one - Asia Enterprise Holdings - managed to outperform the broad market. The rest - Longcheer, Genting International, Electrotech and CDW - had all fared worse than the market. These are IPOs where DBS was the sole issue manager. The average annualised returns of the five IPOs is 14 percentage points worse than the SES All Shares Index. The median is -10 per cent.

In that year, OCBC brought three companies to the main board. All three - Ban Leong Technologies, Karin Technology and Union Steel - under-performed the market. Meanwhile, UOB Asia had four main board IPOs in 2005. Only one - C&O Pharmaceutical just about edged ahead of the general market by 1.3 per cent. The rest, Sarin Tech, Advanced Integrated Manufacturing and Pacific Healthcare chalked up returns of 10 to 36 percentage points lower than the market. All its three Sesdaq companies in that year also fell significantly behind the market - in excess of 30 percentage points - in terms of share price performance.

Their general record in 2006 also left much to be desired, although OCBC did hit the jackpot with Jiutian. Between its IPO and Wednesday this week, the stock has outperformed the market by a whopping 160 percentage points. Last year was not much better.

Arguably, the investment bank which has the best performance in the past three years is HL Bank. There are more hits than misses when it comes to the companies it helped go public. In 2005, it managed the IPO of China Sky Chemical and Sinopipe Holdings. The former outpaced the market by 45 percentage points, while the latter performed in line with the market. Three out of its five IPOs outpaced the market. There, is however, no escaping the duds. In that year, Fabchem had turned out to be one, and so did Sun East. Last year, it was responsible for bringing China Oilfield to Singapore. And up till this week, that counter is ahead of the market by 48 percentage points. Even for Sesdaq listing, HL Bank has brought more winners and losers to investors.

Hong Leong Finance had a very good record in 2005. It hit the bull's eye in all three deals that it did - Fragrance Group, BH Global Marine and China Wheel. Each has outperformed the market by 92, 52 and 11 percentage points respectively. However, the outfit did not have any deals in the last two years.

Another two investment banks which had brought more winners than losers to the market are Westcomb and Stirling Coleman. Ironically, they are two of the firms which have been censured before by the exchange for supposedly not being stringent enough in their due diligence work.

Westcomb brought eight companies to the main board and nine to Sesdaq in 2005. Out of that, five from each board have beaten the general market returns. It did only one deal in 2006, and that was Swiber. The stock has turned out to be a multi-bagger for investors. It has risen by eight times compared with its IPO price. One of two of its Sesdaq deals in 2006 also turned out to be a super performer. Sitra Holdings has returned 344 per cent since its debut on the second board in November 2006. Westcomb's record in 2007 also stands out. Out of the four deals it did - three for main board and one for Sesdaq - three outperformed the market by a big margin.
As for Stirling Coleman, it has its hits and misses. But the hits more than make up for the misses.

My study also found that when the market got heated in 2006 and 2007, investment banks tended to stay conservative in pricing their IPOs. As a result, there were huge gains on the first day of trading. The average was 33 per cent gain on debut in 2006 and 50 per cent in 2007. This compared with just 2.9 per cent in 2005.

However big foreign issue managers like UBS and Credit Suisse were rather aggressive in pricing their IPOs. This resulted in issues which didn't leave much on the table for IPO investors, or worse, issues which fell underwater on the first day of trading.

UBS's Babcock and Brown dropped below its IPO price by 4.7 per cent on its first day of listing on Dec 20, 2006. The Swiss bank's two other issues - MacarthurCook Industrial REIT and Parkway Life REIT - last year also ended below their offer prices by 3.3 per cent and 7 per cent res respectively.

The average first-day performance for Credit Suisse's two IPOs in 2006, meanwhile, was a mere 4.6 per cent and its lone IPO in 2007 chalked up a first-day gain of 8.7 per cent. Again, these are issues where the banks are the sole managers.

So, as seen from the study, having a strict due diligence process at the IPO stage does not necessarily guarantee a market-beating issue.

Sunday, 13 January 2008

Afor Limited

(IPO booth at Raffles Place. It was unusually crowded due to freebies offered by the launch of My Paper).

Afor Limited is a one-stop premium retailer specialising in the sale of Apple brand products and its complementary products.

1m public shares at $0.33 each
22.5m placement shares.
Issue Manager: DMG & Partners and Primepartners Corporate Finance
Closing date: 16 January 2008

FY2007 ended 30 June 2007

Revenue - S$60m
Net profit - S$3.47m
EPS based on post share cap of 93.5m = 3.71 cents
PE based on IPO price - 8.9x

This is basically the listing of a mama shop selling someone else's product. While we can easily write off this company as one without its own products and is just a concept retailer, the encouraging thing about this entreprenuer is that he has shown you that if you have the correct concept and know the market well, you can be profitable.

A retail shop selling Apple products is more profitable than Creative with its own brands and patents?! Creative should perhaps just concentrate on R&D and sell its technology to Apple for marketing and branding.

Anyway, Apple products have also given people as the 'cool' thing to have, and the next in-thing will be the iphone that will be brought into Singapore in 2008. Challenger 1H07 sales is $65m and net profit is $3.8m, assuming a full year profit of $7.6m, the EPS is 4.06 cents and PE is around 6.77x. Challenger is trading at a cheaper valuation as compared to Afor.

Conclusion: There are better stocks with cheaper valuation around.

Tuesday, 8 January 2008

Old Chang Kee Ltd

(Old Change Kee Store at Golden Shoe)

This is the first IPO stock on the Singapore stock exchange to be launched in year 2008 and i must say the Company is either very brave to have its IPO launched or very desparate for cash.
Westcomb did not set up any booth to distribute the prospectus and i believe that is financially wise since the public tranche is only 1m shares and this is really a 'microcap' company.

Share price - $0.20
No. of shares - 25m (24m placement, 1m public)
Issue Manager - Westcomb
Closing Date - 14 Jan 2008

With the post-ipo market cap of only $18.7m, this is really a micro cap company. My comments is that unless you are in love with Old Chang Kee curry puff and believes that the puff'o will dominate the world market one day like McDonalds, you avoid this stock. The financials for 2007 1st half actually showing the Old Chang Kee is 'stagnating' with no growth. Put it this way, the raw material prices are increasing but can OCK pass on the costs to consumers?

Assuming i give the most bullish forecast where 2007 EPS (post-IPO) is 3.5 cents, the Company is trading at 5.7x PE. I think that is already fairly valued for a company that is currently not showing any growth. With low barriers to entry and difficulty in scaling up this business, my suggestion is to avoid this counter and give it a 1 chilli rating. Perhaps this company may because more valuable as a 'shell company' for acquisition eventually (in a reverse takeover).

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