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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.

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