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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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