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Monday, 31 October 2011

Parkson Retail Asia Limited

Parkson Retail Asia Limited ("PRA" or "the Company") is offering 147m shares at S$0.94 subject to further over-allotment option. Parkson was established in 1987 and today, operates about 50 stores across cities in Malaysia, Vietnam and Indonesia. The Company is scheduled to open 3 malls in FY2012 with one store each in Malaysia, Vietnam and Indonesia. The first "foreign" department store in Cambodia is expected to open in FY2013. The Company operates under the name Parkson in Malaysia and Vietnam and under the name "Centro" in Indonesia. The Indonesia malls were newly acquired in June 2011. In a nutshell, the Company operates departmental stores in South East Asia and is similar to companies such as Metro, Tangs, Isetan, Takashimaya etc.

Proforma sales has been growing steadily from S$301m from 30 Jun 2009 to S$408m in 30 Jun 2011 and net profit has also grown from S$11m in FY2009 to $35m in FY2011. PRA is offering 136.15m shares via placement and the remaining of 10.85m shares via public offering. The offer will end on 1 Nov 2011 at 12pm. The Company intends to use the majority of the proceeds raised for stores opening. The Company intends to distribute dividends between 40% to 50% of its distributable profits from next FY onwards. 

According to the Prospectus, the proforma EPS for the year ending 30 June 2011 adjusted for the IPO shares will be 5.17 Singapore cents. At the IPO price of $0.94, it translates into a listing PER of 18.18x. The NAV post IPO will be $0.29 (versus the $0.94 subscription price). Based on a DBS research report dated 28 Oct on Parkson Holdings Berhad ("PHB"), the IPO price Parkson Retail Asia at 13x of forecasted earnings of FY12PE of S$48m. The market cap at IPO price is $699.64m.

Basically this is a retail sector play in the South East Asia (ex Singapore). It is good that SGX can attract a Malaysian home brand to list in Singapore. What would be some of the risks investors should be aware of?

1. Foreign Currencies risk. Basically the underlying assets are in Malaysia, Indonesia and Vietnam. The "sales and profits" will be made in those underlying currencies and then translated to Singapore dollars for reporting purposes. If SGD strengthens against currencies in those countries, then it will have an adverse impact on the profitability. From the cash flow statement, the forex impact on cash was a whopping negative $10.13m 

2. Exchange Control. In addition to forex risks mentioned above, the repatriation of profits may be subjected to exchange controls in Malaysia and Vietnam. However, this may not be a significant risk factor as PRA will want to dividend out its earnings to its parent PHB.

It is interesting to note that while sales has been increasing over the last 3 years, the net cash generated from operating activities has actually been declining from $83m to $55m.  The net cash used in Financing activities has also surged to $70m in FY2011 (mainly due to dividends of $56.3m back to its parent company..)

This deal somewhat reminds it of Capitaland spinning out Capitamall Asia. Parkson Holdings Berhad is already listed in Malaysia. It then restructure itself and groups all the SEA department stores under a new Singapore holding company, including the recently acquired Centro stores in Indonesia. It then list the new Singapore holding company called Parkson Retail Asia Limited. (For your info, the parent company of Parkson Holdings Berhad is Lion Diversified Holdings Berhad). After the IPO, Parkson Holdings Berhad will still own about 67.6% of the Company. PHB also holds about 51.5% of Parkson Retail Group listed on HKSE.

In terms of Valuation, the IPO is fairly priced for historical and somewhat more attractively priced for FY2012. As of 1 Nov, Parkson Holdings Berhad is trading at 17.7x historical and 14.4x forward while Parkson Retail Group is trading at 19.8x historical and 16.4x forward. If the IPO rise to 15x forward, it will imply a price of $1.08 (15% upside from IPO price). Post IPO, there will be 744.3m shares. Assuming DBS's $48m earnings forecast is accurate and they pay out 40-50%, that will mean $19.2-24m of dividends or around 2.58-3.22 Singapore cents per share. The implied yield will be 2.74-3.42%. While there are no 'similar peers' listed here, OSIM is currently trading at 11.1x forward and Metro Holdings at single digit PE. I guess it can 'command' a premium due to its strong parentage and underwriters willing to price the IPO at a premium despite current market sentiments.

Conclusion:  This investment provides a good exposure to investors who are keen on the SEA department stores. I do like the outlook, proven track record and rising consumer income in Vietnam, Indonesia, Malaysia and possibly Cambodia going forward. While the pricing may not be cheap, it is priced close to its parent company and cheaper than its HK listed related company (reasonably so). The promised yield will provide some downside support while keeping enough cash for its future expansion. 

Tuesday, 25 October 2011

CNMC Goldmine Holdings Limited

CNMC Goldmine Holdings Limited ("CNMC" or "the Company") is placing out 41m Placement Shares in its IPO on Catalist. The Company is selling 23.9m New Shares and 17.2m Vendor Shares at $0.40 each. There is no public tranche and the offer will end on 25 Oct 2011 at 12pm. The Company is principally engaged in the business of exploration and mining of gold and processing of mined gold ore and owns the mining rights to a plot in Malaysia.

The Company has no revenue in FY2008 and FY2009. In FY2010, its revenue was US$530,169 but its loss was US$1.93m. In Q1 2011, the Company continued to incur a loss of US$668,655 and the loss per share was US$0.17. I thought it was somewhat confusing to state that the NAV per share was US$0.50 on page 31 and the another figure of Singapore 1.64 cents on page 48. Accordingly, the NAV per share is Singapore 3.61 cents post IPO placement.

There is no PER ratio to start with as the Company had been incurring losses. The market cap based on the 40c IPO price was S$162 million.

According to the prospectus, you might be interested to know that there is currently a pending law suit from Falmac against 2 of its ex-directors, Choo Chee Keong and Kuan Cheng Tuck for a breach of fiduciary duties. If they are found to be in breach, then it is likely they will be barred from any directorship for a few years. There were also other disclosure pertaining to directors Lin Xiang Xiong and Lim Kuoh Yang regarding bankruptcy petition and traffic offence... (first time i see such a long comprehensive list on pages 170-173)...but none of the directors look like a mining expert to me.

The whole shareholding structure looks like a typical Pre-IPO deal which Choo Chee Keong is very familiar with , with many BVI companies and individuals coming in prior to its IPO. From the way it is initially set up, my guess is that the Company wanted to list in HK but subsequently decide to list here instead.

The independent valuation states that the Fair Market Value is reasonably stated as between S$87m to $118m. Personally i am no mining expert and i have no idea how to read the independent valuer's report nor value its reserves and I am not sure whether the valuer is worth its salt or not... As such, i will not comment on the valuation of this company. I believe the current balance sheet does not reflect the value of the potential production of the mine...which is why the Company is able to list at a huge premium to its NAV.

Anyway the entire share is being placed out, thus there is no public tranche. I am not sure how to value it, i am no fan of the IPO king and i will not touch it. Only time will tell if this Company is worth its gold.

Friday, 14 October 2011

IEV Holdings Limited

IEV Holdings Limited ("IEV") launched its Catalist listing for 37m new shares at $0.30 each via placement through Collins Stewart. IEV is an acronym for "Innovative Engineering Ventures" and supports the offshore oil and gas industry in Asia Pacific. 

IEV claimed to have invented an "ocean-powered" marine growth control technology that prevents any marine life to grow on the offshore platforms. (Hmm... it is always interesting how these most environmentally unfriendly companies try to position themselves as clean and green).

I think in layman's terms, IEV provides "technology" that can extend the life of the platforms as marine life (i presume such as clams and mussels) are unable to 'stick' onto the metal railings.  Such a business has proven to be lucrative as the Company is able to carve a niche for itself. The audited revenue grew from RM 25.3m in FY2008 to RM 67.7m in FY2010 and the profit after tax grew from a loss of RM6.2m in FY2008 to a profit of RM16.8m in FY2010.

The Company has proposed that it intend to distribute at least 10% of its net profits for FY2011 as dividends.  The IPO will close on 21 Oct at 12pm. Based on the enlarged share capital of 135m shares, the NTA per share is about 15.3 cents and the listing PER is about 7.5x.  The market cap at its IPO price is $51.6m

At its IPO price, i think the company is priced fairly. I have not attempted to 'forecast' its 2011 profits but from the look of the graphs above, the earnings can be quite 'lumpy' and leaned towards the 2nd half of the year.  

It is quite 'heartening' to see  one IPO making a comeback after such a long lull period even though it is a Catalist listing. For the sake of our local bourse, I hope this Company will do well enough such that more companies dare to come forward. Unfortunately, the challenges faced continue to be the weak market sentiments and the recent weeks of steep price declines had make existing stocks valuations more attractive vis-a-vis this company.

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