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Tuesday, 26 May 2009

Teho International Inc Ltd

Teho International Inc Ltd ("Company") is placing out 16.8m shares comprising 11.8m New Shares and 5m Vendor shares at $0.24 per share for a listing on Catalist. The Company is a supplier of rigging and mooring equipment as well as related services to customers in the marine and offshore O&G industries. The IPO will start trading on June 4, 9am.

Revenue grew from SGD 25.1m in FY 2006 to SGD 25.3m in FY 2008 while profit after tax rose from SGD 1m to SGD 8m in the same period. The revenue for 1H FY 2009 is SGD 18.7m and the net profit after tax is SGD 5.7m. The listing fees cost approximately S$1.6m. Frankly, to raise S$4m fresh money only to "pay" $1.6m in expenses hardly makes any sense just to buy a listing status. The financial year is from 1 July to 30 June.

The EPS for FY 2008, assuming the service agreement was in place, will be 7.5 cents based on pre-placement capital of 100m shares and 6.7 cents based on post IPO 111.8m shares. At the price of $0.24, the company is listing at a historical PER of 3.58x, which is reasonable for investors under current market conditions. After listing, the Company will have a market cap of S$26.8m. (Ultra small cap). After the listing, the Company will only have 15% public shareholders while the Lim siblings will own approximately 85% of the Company. Investors who are wary of being a minority shareholder should avoid this company and trading liquidity is likely to be an issue as well.

The oil and gas industry outlook will likely remain positive for the coming years and net margins looked pretty decent for this company. The Company intend to distribute 20% of its profit as dividends for FY 2009 and FY2010. Assuming net profit after tax is S$11.4m for FY 2009, the dividend per share will be 20% x 11.4m divide by 111.8m shares = 2.04 cents. Based on the IPO price of 24 cents, the dividend yield would be a respectable 8.5%. As of 31 Dec 2008, the NTA was 17.1 cents.

My personal view is that the IPO is attractively priced with a promise of good yield if the Company is able to deliver profits for the next 2 years. However, the downside will be the small public float and lack of institutional investors (for corporate governance, which may or may not be an issue). Other than that, the same old set of "issues" for small cap companies exist such as lack of analyst coverage and outside most fund manager's mandate due to the small cap and small public float.

It is however, good to see a listing again after a long break (even though it is a Catalist listing). My view is that many companies will attempt for an IPO listing again should the IPO window be opened by Teho....

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