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Thursday, 25 November 2010

Amtek Engineering Ltd

Amtek Engineering Limited ("Amtek") is offering 200m vendor shares at $1.30 each subject to over-allotment option. 180m shares will be via placement and the rest for the public.  The offer will close on 29 Nov at 8am (an unusual timing from the 12pm) and commence trading on 1 Dec.

According to FinanceAsia article, Amtek downsized its IPO after weak institutional demand to allow for "greenshoe" option so that they can help stabilize the market upon listing. Amtek provides end-to-end design and manufacturing solutions for precision metal, plastic and rubber components and casing. The company was privatised in Aug 2007 by Standard Chartered Private Equity and CVC Asia at around $0.69 per share (apple-to-apple comparison) versus the listing price of $1.30.  

The company intends to pay up to 50% of its net profit after tax as dividend and this will be its dividend policy. Considering that the majority of the shareholders are PE firms, this is not surprising.

Revenue for the year ended 30 June 2010 is US$638m and net profit after tax is US$21.682m. The EPS was US 4 cents and that is approximately Singapore 5.16 cents. That translate into a historical listing PER of 25! (wow!). The NAV per share is only $0.29 versus its listing price of $1.30.  That translate into a 4.5x price to book.

Venture Manufacturing had sales of S$3.4 billion and net profit of S$143.7m and is trading at 17.1x historical PE and 1.3x Price to Book. Based on 2010F earnings, Venture is trading at 13.4x PE and 1.3x Price to Book. Venture's EBITDA for 2010F is approximately S$246.6m versus Amtek's $107m for year ended 30 June 2010. In other words, Venture might be a cheaper and better alternative for investors to consider, although my caveat is that i have no insight into Amtek's forward performance for FY2010/11. Interestingly, the CEO of Amtek, Daniel Yeong, was previously the CEO of GES which was subsequently sold to Venture. You can say that he is a true blue entrepreneur and this is his "second pot" of gold even though he has no bachelor 'degree'. Daniel was brought into Amtek after the PE firms did the buy-out, i am sure that over the years, he has managed to restructure Amtek into a better firm. 

Unfortunately, the issue is a bit overpriced at $1.30 (and that is even below the original indicative range). I would give it a 1 chili rating and "avoid" at its IPO price. The fact that vendors are 'cashing out' is no added consolation.

Wednesday, 24 November 2010

Sabana REIT

Sabana Shari'ah Compliant Industrial Reit is offering 508 million units for $1.05 each in its initial public offering (IPO). About 432.5 million units will be for large institutional investors with the remaining 75.5 million available to small investors.

The units will give a yield of 8.22 per cent for next year, based on the expected distribution of 8.63 cents per unit. The yield for 2012 is expected to be 8.25 per cent or 8.67 cents per unit. The offering closes at 6pm on Wednesday with trading expected to kick off at 2pm on Friday.

Sabana holds 15 industrial properties across Singapore and will manage them in line with Islamic principles. To be Shari'ah Compliant, the premises cannot be used for gambling, for example, or the production of pork or alcohol for human consumption. An independent Shariah committee will advise the Reit manager and issue the compliance certification.

Mapletree Industrial Trust is currently trading $1.09 (and that translate into a yield of 6.82%m versus the yield of 8.22% for Sabana for next year). Having said that, MIT is a much bigger firm with better assets and Ah Gong's backing, thus the credit worthiness and ratings are at a premium.  Assuming a fair value yield of 7-8%, that will translate into a fair value price of between $1.12 to $1.23. However, the firm is launching its IPO amidst uncertainties over the Euro zone economy, jittery markets and a mini "war" breakout between the Koreans. In this aspect, while i expect downside to be limited, do not expect any spectacular 'fireworks' on its debut. I think it will likely be range bound between the fair value range i mentioned above. 

I would have preferred it to be priced "below $1" by issuing more units so that it can cross above $1 on its debut (something like how MIT has priced itself). However, what i am proposing is just more psychological than anything else. I will give it a 2 Chilli rating but dont think you will 'miss anything' even if you dont apply.

Wednesday, 17 November 2010

Mewah International Inc.

Mewah International Inc (the "Company") is offering 251.679m shares (226m New shares and 25.62m vendor) in a global offering at the lower than expected indicative price of S$1.10 per share, citing "volatile market conditions".  The public tranche offer of 12.584m shares will close on 22 Nov at 12pm. The Company is one of the largest palm oil processors in the world by "capacity", manufacturing and distributing edible oil products under well recognised global brand names. 

The Company has 3 refineries and processing plants in Malaysia and 3 packing plants in Malaysia (2) and Singapore (1). The Company is involved in both bulk segment (wholesale) as well as consumer segment (brand management).

Revenue for 2009 was US$2.86 billion and profit after tax was US$89.6 million. For 6 months ended 30 June 1010, the revenue was US$1.62 billion and profit after tax was US$35.5m. Comparing June 30, 2010 figures with the prior period, gross margin (gross profit/sales) has dropped from 11.9% to 7%. Net margin has also declined from 4.24% to 2.19%. While the quantum of net profit is 'huge', against all the peers i seen in the palm oil sector, this is one of the companies with the lowest net margin i have seen. The adjusted EPS for FY ending 31 Dec 2009 was US$0.06 or around Singapore 7.74 cents. That will translate into a listing PER of 14.2x. However, considering the 2010 will be a "down year" due to margins being squeezed by 100%, it is unlikely that the EPS for 31 Dec 2010 will match that of 2009. Assuming we are aggressive and use a 1Hx2 EPS of US$0.04 or Singapore 5.16 cents, that will translate into a forward PER of 21.3x. Of all the "plantation and agricultural" stocks listed in Singapore, only Wilmar and Indofood command such a PE ratios while Golden Agri, First Resources and Kencana are trading in the teens. Malaysian-listed palm oil plays such as IOI and Genting Plantations are trading in the 19-23x range. The fact that Wilmar just announced a disappointing Q3 results and the heavy corrections in the markets are not helping to boost interest in this counter. 

Valuation wise, I would regard the counter as more than fairly valued and with the declining margins seen, I would avoid this issue at current price as i don't believe the 2nd half performance can match the 1st. Top management wise, it is made up of the "Cheo" family (since they founded this business), so it is up to you to interpret if such structure is good or bad for the company. As in all family business, united they stand and disunited, they fall. :)  

Updated analysis thanks to "IPO Hunter" comments

On page 40, the Company indicated that revenue was US$2.2 billion and net profit after tax of US$52.2m. The gross and net margins are 7.3% and 2.4% respectively. EPS for the 8 months was US$0.03. Assume i still "pro-rate" this results over 12 months, the net profit will be US$78.3m and that represents a EPS of US 5.2 cents or Singapore 6.7 cents. That translate into a forward PER of 16.4x.  That helps to make it "in-line" with the market PE ratios and may even provide a small possible upside to $1.34 (assuming 20x forward PE).

The updated analysis is not going to change my 1 Chilli rating for this Company and i would still 'avoid' this IPO at current price. As usual, i can be wrong.

Friday, 5 November 2010

STX OSV Holdings Limited

STX OSV Holdings Limited ("the Company")  is offering 180m New Shares and 145.646m Vendor shares for sale at $0.79 each in its IPO. Goldman Sachs is the Global Coordinator while DBS is the Singapore public offer coordinator. 309.363m shares will be placed out while 16.283m shares will be via public offering. There will also be over-allotment option and stabilization action, if necesary. The market cap before allotment is around S$1.05 billion

The Company is one of the major global designers and shipbuilders of offshore and specialized vessels used in the offshore oil & gas exploration and production and oil services industries. Headquartered in Norway with about 9,000 employees, it has 10 yards (1 under construction) spread over 4 countries (Norway -5, Romania -2, Brazil - 2 and Vietnam -1). Singapore is the sales office with only 4 employees. Its vessels include the AHT (Anchor Handling Tug supply vessels), PSV (platform supply vessels), offshore subsea construction vessels and others such as coast guard vessels, ferries, ice breakers and seismic vessels. It is part of the STX group of companies and its decision to list in Singapore somewhat is an endorsement that SGX is a key listing venue for shipbuilding companies. 

The current order book indicate 23 vessels to be delivered in 2010, 23 in 2011 and 13 in 2012 and 5 in 2013. The order books for the later years should fill up in the coming months if the oil   price continue to creep up and break the $100 barrier, which would then spur demand for existing and renewed exploration needs.

This prospectus is well drafted (I like it). The information is concise and straight to the point and information are greatly presented to give you a concise picture of how earnings are derived. The IPO will close on Nov 10, 2010 and 12 pm.

STX OSV's revenue for the year ended 31 Dec 2009 was $2.054 billion and profit for the year after tax was $16m. For the 6 months ended 31 Dec 2010, the revenue was $953m and the net profit after tax was $91m. EPS for year ended 31 Dec 2009 (accounting for the issuance of new shares at IPO) was US$0.014. Using a current exchange rate of 1USD-$1.29, the EPS is Singapore 1.806 cents and that translate into a historical PER of 43.7x. However, that may not be indicative of the forward PER as we are coming to almost end of the year. The fully diluted EPS for 6 months 30 June 2010 was US$0.076 or Singapore 9.804 cents. Using a simple 'pro-rating', the full year projected EPS will be 19.6 cents. That will translate into a forward PER of 4.02x (hmmm... is my computation wrong somewhere?) For analysts who attended the IPO briefing, maybe you can help me with the 'forecasted' diluted EPS from the company?).  

The Company's dividend policy is to pay a stable (preferably rising) dividend over time.  The Company expects its annual cash dividend to be no less than 30% of the Company's distributable annual profit. The NAV per share will be $0.41 versus the $0.79 IPO share price.

The IPO proceeds will be used mainly to improve the yard in Vietnam and second shipyward in Brazil and the rest will be spread across other purposes. Post listing, STX Europe Holdings will hold 68.3% of the Company. If you look at the management, they are made up of mainly Norwegians, however, the board has many Koreans. Before you starting thinking that this Company is a European company, the 3 letters "STX" might ring a bell? STX Pan Ocean was listed in Singapore before it seeks dual listing back in South Korea a few years back. STX Group is Korea's 12th largest business group by total assets and has 54,000 employees worldwide.  

Personally, i think the company is very good in timing its IPO. The Company is listing its shipbuilding unit when everyone starts to believe that the good times will be 'back' and that shipbuilding orders for the oil & gas industry will return once oil price break above the $100 mark again. The Company looks 'cheap' based on the FY2010 projected PE even just by using the half year EPS. The peers such as Cosco, Yangzijiang and Otto Marine are trading at much higher multiples, especially Cosco. Assuming a fair value range of 10-15x and assuming my EPS of 1H x 2 is reasonable, the fair value will trade between $1.96 to $2.94 (sounds too good to be true). Assuming i just use first half EPS of (0.076 x 1.28) = Singapore 9.73c. The implied ultra conservative PE fair value will be S$0.97 to S$1.46.

I think the IPO is worth investing and subscribing as it is attractively priced.

Monday, 1 November 2010

Nordic Group Limited

Nordic Group Limited ("the Company") is offering 110m New Shares (2m for public and 108m via placement) at $0.20 each.  Established in 1998, the Company is an automation systems integration solutions provider serving mainly the marine and offshore oil & gas industries.  The Company has an order book of $37.4m at the date of prospectus and intends to distribute up to 30% of its net profit after tax for FY2010 as dividends. The IPO will close on 8 Nov at 12pm.

Revenue grew from S$19.2m in FY2007 to S$41.9m in FY2009 and net profit after tax grew from $2.35m to $8.4m in the same period.  Based on fully diluted basis, the EPS for FY2009 is Singapore 2.1 cents and that translate into a historical listing PER of 9.52x. For the 3 months ending 31 March 2010, the EPS is 0.5 Singapore cents, implying a growth of 66% over the same period last year. Assuming EPS for FY2010 grew by a moderate 30%, the EPS will be 2.73 Singapore cents and that translate into a forward PER of 7.3x. A fair value range of 7-10x will indicate a price of 19c to 27c. 

The issue is more fairly priced this time round and for a company that is exposed to the oil and gas sector with 'generous dividend' being promised, i guess the downside at 20c is limited.  However, as it is, the company is still a small cap company at $80m and has generous service agreements with its key management.  In addition, we are not privy to who the shares are being placed out to. It will be difficult to get it from the public tranche and with IPO sentiments turning sour, I would give it a miss as the small lots you get from the public tranche may not cover your selling commission.

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