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Thursday, 28 January 2010

Sin Heng Heavy Machinery Limited

Sin Heng Heavy Machinery Limited ("SH") is offering 168m shares (comprising 88m New Shares and 80m Vendor Shares) for its Initial Public Offer at 26 cents each. The IPO will close on 1 Feb 2010 at 12 pm.

SH is one of the leading lifting service providers in Singapore, focusing on the mid-to-high lifting capacity segment. It has two core businesses, one involving the rental of cranes and aerial lifts and the other involves the trading of bo new and used cranes and aerial lifts.

Revenue grew from $82.7m in FY2007 to $137m in FY2009 and net profit grew from $9.2m to $22m during the same period. Assuming the service agreement is in place in FY2009 and based on the Post-IPO shares of459.64m shares, the EPS will be 4.74 cents.

Based on the IPO price of 26 cents, the market cap is $119.5m and the Company is listing the valuation of 5.48x. One of its listed peers on SGX,  Tat Hong is currently trading at 7.2x but Tat Hong is a much larger more profitable rival and thus a higher PE is justified.

Sin Heng is a Private Equity-backed company and is majority owned by PE funds. While the current shareholder is partially cashing out at this IPO, DBS is being appointed as a stablising manager post its listing.

Assuming the EPS for FY2010 grow by 15% and PE valuation expands to 6 to 8x, that will imply an EPS of 5.45 cents and a fair value of between  a fair value of 32 cents to 43.6 cents. Unfortunately, current market conditions are taking a turn for a wost and the IPO window may be closing soon!The fact also remains that the main shareholder is a Private Equity Fund means that selling pressume will resume once the moratorium ends.

Wednesday, 20 January 2010

Ryobi Kiso Holdings Ltd

Ryobi Kiso launched its IPO by issuing 192m shares at 26 cents each.  2m shares will be for the public while the rest will be via placement.

The IPO will close on 25 Jan 2010 at 12pm.

Despite the huge placement shares, i understand that demand for this stock was overwhelming. Let's see if the fundamentals and valuation justify such a response.

Ryobi is a specialist of bed piling and eco-friendly piling and geoservices.  It has over 19 years of track record in Singapore and completed more than 300 public and private sector projects. 

Revenue for the Group increased from $56.6m in FY2007 to $160.317m in FY 30 June 2009.  The net profit for the same period grew from $10.139m to $34.297m. Based on the post-invitation share capital of 765,268,240 shares, the EPS for FY2009 is 4.5 Singapore cents.  At the IPO price of $0.26, Ryobi is listing at a historical PE of 5.78x. The IPO proceeds will be mainly used to acquire new equipment, land, building, expansion and working capital.  At least the amount raised is a decent $49.92m with only $3m going to listing expenses.  The market cap will be $199m post listing. 

The company has promised to pay at least 25% of its net profit as dividend for profits acheived in FY2010 as final dividends.  Just for a ball park figure without considering any profit growth or factors that may affect dividend payout, assuming the EPS is similar to FY2009, the DPS will translate into 1.125 Singapore cents and that will mean a dividend yield of 4.32%.

Looking at the composition of the board, it seemed that they are seasoned entreprenuers with the key management in their 50s. It might be interesting to see if they have already in place a succession plan to groom the next generation of leaders in the next 10 years. The thing that i dont really "like" is the family management team, which also includes the CFO Tan Ghee Hwa, who is the sister-in-law of the spouse of the Executive Director. Another thing that i 'dont like' is that the revenue is derived mainly from Singapore and that means that growth could be limited somewhat in future.

Outlook wise, the Company seemed to have sufficient projects on hand and the prospectus disclosed about $50m worth of projects that will be completed in the next 12 months. It would have been much better if investors are given performance for the first 3 months. A good thing about this company is that the piling projects are usually the "start" of a construction project and the cycle is relatively shorter and payout faster since foundation is the "start" of all construction projects.

The peers in this sector are trading at very wide ranging multiples from low single digit historial PEs to triple digits PEs.  Overall, i think the company is "priced-to-sell" in this market and based on a fair value PE of 8 to 10x, Ryobi's fair value will range from 36 cents to 45 cents as the 25%  payout is less than 9 months away (assuming dividend payout in Sep 2010).

Just in case you decide to apply for the IPO, note that the writer has vested interest in Ryobi as well as in Tiger Airways.

Tuesday, 19 January 2010

Tiger Airways IPO Update - Raised $178m

This article is from Finance Asia. Good luck to readers who have applied for it. The final price is set at $1.50. I have "tickam" for some at the ATM. See if it is lucky to get or lucky not to get.

The Singapore-based budget airline drums up strong support for its upcoming listing, despite a short operating history and an aggressive expansion plan.  The Year of the Tiger may not officially start until February 14, but for people involved in Singapore's first listing this year, this may well feel like the Month of the Tiger -- worthy of at least a small roar.

The reason for that would be the strong support for budget airline Tiger Airways Holdings' initial public offering, which took quite a few market watchers by surprise, coming as it did at a time when the economic environment has pushed a large and well-established airline like Japan Airlines to the brink of bankruptcy. Under such circumstances, Tiger's short track record and aggressive expansion plan could make even the coolest of investors fasten their seatbelts and worry about air pockets ahead.

But the investor actions speak a different language. In fact, the institutional portion of the deal, which accounted for more than 90%, was four times covered and attracted more than 70 accounts, while retail investors subscribed for 21.3 times as many shares as had been earmarked for them.

The orders included some price sensitivity, however, and taking into account the views of some key institutional investors, the company agreed to fix the price at S$1.50 -- the mid-point of the S$1.35 to S$1.65 offering range. This allowed it to raise S$247.7 million ($178 million) which will be used as part payment for 50 new aircraft that will be delivered between 2011 and 2015, as well as for repayment of all outstanding short-term loans and the establishment of new hubs in addition to its three current bases in Singapore, Melbourne and Adelaide.

In a release announcing the outcome of the IPO, Tiger Airways' president and CEO, Tony Davis, said he was "absolutely delighted" with the response from both retail investors in Singapore and major global investors and he took it as "strong vote of confidence in our low-cost business model and the growth potential of the airline".

The low-cost airline, which before the IPO was 49%-owned by Singapore Airlines, sold 30% of its enlarged share capital in the form of 165.155 million shares, of which 95% were new. There is also a 12% greenshoe that could add another 19.8 million shares to the deal and increase the total proceeds to as much as $200 million.

The allocations were said to have been heavily skewed towards long only investors and the higher quality participants, with more than 75% of the deal allocated to the top 20 investors. Three-quarters of those 20 investors were long-only accounts.

The final price values the company at about 12.6 times its projected earnings for the fiscal year ending in March 2011. This puts it at a significant discount to Ryanair, which trades as of yesterday at a P/E multiple of 15.8 times, based on projections for the fiscal year to March 2011. Given Ryanair's lower operating history and track record, this makes sense.

However, Tiger Airways is coming to market at a premium to AirAsia, which according to the Bloomberg consensus forecasts trades at only 6.8 times projected 2010 earnings. Analysts who are part of the Tiger Airways syndicate have a more conservative earnings forecast for the Malaysia-based carrier, and put the company at a 2010 P/E multiple closer to 10-11 times -- still implying a premium for Tiger Airways, however.

Investors no doubt took some comfort in the fact that the company is backed by top quality companies and investors. Aside from Singapore Airlines, the company's four founding shareholders include Indigo, a US-based private equity firm that specialises in the transportation sector; Temasek through its wholly-owned subsidiary Dhalia; and Ryanasia, which is a company controlled by Ryanair founder Decclan Ryan.

Indigo was the seller of the 5% portion of existing shares in the main deal, but will remain a substantial shareholder, and Ryanasia is putting up the existing shares for the 12% greenshoe, should it be exercised.

Citi and Morgan Stanley were joint bookrunners for the IPO, with DBS acting as a joint lead manager and coordinator for the Singapore retail offering. The shares will start trading in Singapore on January 22.

Friday, 15 January 2010

Tiger Airways Holdings Limited

Tiger Airways launched its IPO on 13 Jan 2010 at Raffles Place. The prospectus and booth lived up to its name of "low cost" with no pretty air stewardess distributing colourful prospectus. Tiger Airways is offering 165.155m shares at a maximum price of $1.65 per share. The shares offer consist of 155.556m new shares and 9.599m vendor shares.  The IPO will raise net proceeds of S$246.8m if the final IPO price is $1.65 per share. The final price will be determined on its closing date on 18 Jan 2010.

Tiger Airways is a low-cost airline currrently operating out its airbases in Singapore, Melbourne and Adelaide.  Its fleet has grown from 2 aircraft to the current 17 Airbus A320 and it intends to increase its fleet to 68 aircraft by Dec 2015.  The number of passengers flown grew from 1.476m in FY2007 to 3.167m in FY2009 during this period.

The company made a loss of $14.8m in FY2007, a profit of $9.9m in FY2008 and  a loss of $50.8m in FY2009.  For the 6 months ending 30 Sep 2009, the company made a loss of $8.3m.

Personally, i think the business is too "risky" to be even asking for public funds.  Singapore Airlines is trying not to risk its own capital in fighting out the LCC war.  The IPO is really to help Tiger "recapitalise" its balance sheet.

Tiger is spread too thinly over 2 large geographical region. It is facing cut throat competition in Australia where there are many LCC (low cost carriers) fighting over that territory and offering similar routes. Besides incumbent Qantas, there are Jetstar, Virgin Blue and V Australia.  In Singapore, it is facing competition from the regional LCCs such as Jetstar Asia, Air Asia, etc not to mention Silk Air, its 'related company'. Margins is thin and any external shocks like a oil spike or outbreak of SARS will make many LCCs out of business!

Frankly if you think about it, Tiger is even facing competition from similar routes with its sister company, Silk Air! While i have not taken Tiger Airways, i do hear or read many complaints about the poor service from Tiger. While SIA may be a financially strong backer that can help Tiger get " bulk discounts" from aircraft purchases etc, it can also be a 'hinderance' to its own growth as it may be morally "not allowed" to 'encroach' on lucrative regional routes served by Silk Air or SQ. Singapore Airlines holds 49% prior to the IPO and its shareholding will be diluted to 33% post listing.

I really dont know how to value this company as the company is still loss making and somewhat like a 'start-up'. Investors will have to look "into the future" to know its true value and believe that the management can execute its plans and keep its costs low. I believe even Warren Buffet regreted ever investing in a "commodity business" like airlines business in USA.

While i may not like the counter (just like CapmallsAsia), it also somewhat remind me of the fact that there are "strong supporters" behind this IPO. It is likely that the stablising manager will help to support the share price for the initial weeks and investors who like to punt IPO can still make some $ from it.

In my personal view, investors who really like the LCC business model may want to invest in Air Asia listed in Malaysia where it is profitable and trading at cheaper valuations than Tiger. Happy flying. 

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