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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.

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