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Singapore IPOs: Why I No Longer Cover Every Listing

Some readers may have noticed that I have not been writing about every Singapore IPO since last year. The simple reason is that life has become busier. Between my day job, an increasingly packed travel schedule, family commitments and desire to play more golf, I have become much more selective about how I spend my time.  Writing detailed IPO reviews takes time — reading prospectuses, analysing financials, comparing valuations and understanding the competitive landscape. While I still enjoy investing and writing, I no longer feel the need to cover every IPO that comes to market. Instead, going forward, I will probably focus only on IPOs where I am seriously considering investing my own money or where there is something particularly interesting that is worth discussing. I suspect this will make the blog more useful as well. Rather than writing about every deal, I can spend more time sharing my thoughts on the handful that I believe deserve attention. That bring...
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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.
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