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)