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Tuesday, 22 February 2011

Chew's Group Limited

Chew's Group Limited ("Company") is offering 12.79m Placement Shares at $0.25 each for a Catalist listing. The offer will close on 24 Feb at 12pm but there will not be any public tranche. The Company is one of the leading producers of fresh eggs in Singapore and specialize in the production and sale of designer eggs.

Sales grew from $14.5m to $19.2m over the last 3 years and net profit swing from $1.5m to $3.05m during the same period. The post IPO EPS for FY2010 will be 3.61 cents and that translate into a listing PER of 6.9x. The PE will be higher if you consider the service agreements that will likely be put in place. 

The market cap based on the listing price is $21.12m. This is a ultra small cap SME but the business is stable and eggs are always in demand here barring any bird or "chicken" flu breakout.  The company intends to distribute at least 20% of its net profit for the next 3 years as dividends. It is interesting to note that Prime always receive 'shares' as part of its fees for managing IPO, perhaps Prime should receive 'payment-in-kind'?

Since this is a 'placement' only IPO and has small float, it will likely be 'well supported' as majority of the shares are still with the Chew Family (68% post IPO). It is likely to be range bound post listing and the company would do well to expand outside Singapore as the market here is limited. The company is also exposed to a 'single product' risk and a bird flu breakout in Singapore will likely affect the company badly. I would give it a miss.

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