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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.


Collin Yeo said...

The board intend to pay out at least 25% subject to few factors. They did not promise.

2Y Capital said...

aiyah, dont be so strict lah..... my england no good :P

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