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Food Innovators Holding Limited

Food Innovators Holdings Limited ("FIH" or the "Company") is offering 14m shares at $0.22 each, for which 13m shares will be through placement and the remaining 1m shares via a Public Offer. The IPO will close on 14 Nov at 12 noon and starts trading on 16 Oct 9am.  FIH has two business models - the first is to be a master lease and sublease the space to other tenants and the second is to operate and manage restaurants.  The Company currently has 12 restaurants in Japan, 10 in Singapore and 4 in Malaysia. The market cap based on the IPO price is around $24.9m. Financial Highlights FIH's revenue grew from $37.8m in FY2022 to $43.8m in FY2024. It is quite funny to see that being a master land lease holder has a higher margin than operating the restaurants, once again illustrating the point that it is better to be a landlord to shake leg and collect rent. According to the prospectus, the PER is around 19x. The Company intends to pay 20% of its net profit after ...

Asian Pay Television Trust



Asian Pay Television Trust ("APTT" or the "Company") finally launched its IPO at a price slightly higher than the mid-point range of $0.97. (The offering range was between $0.92 to $1.00). My preview post is here and the link to prospectus is here. The IPO will end on 27 May 12pm and will start trading on 29 May at 2pm.

The share offering is as follows:
-  Up to 866m units will be via placement 
-  70m units for a public offering. The market cap based on the IPO price is approximately $1.4 billion.

According to news report, the book was about 3x subscribed and given that this is a large float, you can say that it is pretty "impressive".  APTT is offering up to 936,164,086 units at $0.97 each and up to 1,008,004,086 units if over-allotment option is exercised. It is the first listed business trust in Asia focused on pay TV business. Frankly, you have to "credit" Singapore for coming up with the Business Trust regime or else this company won't be able to list here as most regulations require distributions to be made out of profits rather than cash flows. As such, asset heavy companies will find it attractive to monetize their assets via the business trust way (remember Hutchinson Port Holdings?)

APTT intends to distribute 100% of is Distributable Cash Flows and its mandate is to own, operate and maintain mature, cash generative Pay TV and Broadband Business in Taiwan, Hong Kong, Japan and Singapore. As such it is technically possible for APTT  to acquire Starhub Pay TV and Broadband services in Singapore (i am not saying it is going to happen).

Taiwan Broadband Communications Group ("TBC Group")



TBC is the seed asset which is going to be acquired by APTT. TBC group is the no.3 cable TV player in Taiwan with 15% of the market share as of Dec 2012. TBC offers 3 different types of services.















Franchise Area and Subscribers


As of 31 Dec 12, TBC has 751k basic cable TV users, 110,324 premium user and 175k broadband users. What is missing here is "triple play" where mobile, broadband and cable tv are bundled as a packaging (such as our Starhub "hubbing"). It is more of a "double play" of broadband and cable TV. As the infrastructure are "sunk costs", the company will make increasing marginal revenue as the subscriber base grow bigger. The good news is that the company has shown its ability to grow the base, but the not so good news is that the Average Revenue Per User ("ARPU") has been falling. Please refer to table below.















Structure























This is how the structure looks like. It is not quite simple structure and personally, i have a natural dislike for complex structure but it is probably for some taxation reasons.

Balance Sheet

You can see that the price which IPO investors are paying is for the "intangible asset" of $2.2b. According to the prospectus, the intangible asset is the Cable TV license to operate which is renewable every 9 years at "no significant cost" and if there is "no breach" of conditions under the license. There is no amortisation charge against this asset as it has "indefinite" useful life. IPO investors do take note of this intangible asset which you are buying into, which is the "promise" to pay you a stream of cash flows. 

Financial Performance























Not exactly a pretty sight. The Company has been making losses each year but somehow the Company has been able to pay out the dividends annually to the tune of $89m in 2012. It is probably a cashflow generating company if we strip out the depreciation and the interest expenses. Let's look at the pro-forma Profit and Loss statement below.























The pro-forma EPS is 1.86c and that translate into a whopping 50x PER if you want to use that metrics. The Company also made forecasts for FY2013 and FY2014, which is to show investors the "money".   























The forecast for FY2014 is higher because there will be no extraordinary costs to the tune of $72m (see the cash flow projection below).

The table below reconciled what is available for distributions to unit holders.























EV/EBITDA
Not sure if i have computed wrongly, i still cannot understand why i need to pay a mulitple of 13x to acquire this company using the pro-forma 2012 balance sheet and income statement. This is very expensive and considering that it is made up of intangible assets with a lot of bank debt. In the event that interest rate rises in future, the distributions will be adversely affected.

Cornerstone investors

Cornerstone investors are taking in about 32% of the company. They are a mixture of traditional (Prudential and Lion Global) and Hedge Funds (Neuberger Berman, OZ Master Fund (same as the one in STX OSV or Vard) and Quantum (Soros Family). I am not sure what they see in this company that i am "missing". Perhaps they see something that i don't. 

Distribution Yield


APTT has a forecast distribution yield of 7.5% for FY2013 and 8.5% for FY2014. Distributions will be made twice a year and the first distribution will be for the period from Listing Date to 30 June 2013. Distributions will be made within 100 days post the end of each period.


My thoughts about this transaction

This is a case whereby new IPO investors are buying off the stake of an older block of investors (shareholders of MIIF). MIIF is currently a listed entity on SGX and is winding down its operations after its board decide to divest all remaining assets and return the money to shareholders.

I have not been following MIIF so I am not so sure what is so "proud" to be associated with the sponsor, Macquarie, since it is because of them that shareholders of MIIF was in this situation. The stock has under-performed since its listing and i am not a fan of MIIF. Shareholders of MIIF are asking if they should request for cash or units in APPT and my question back is would you still want to continue investing with the sponsor or take this opportunity to get out? Probably i will elect cash if i am a shareholder of MIIF.

MIIF still have a large exposure to APTT post IPO and this transaction is to allow them to trigger out of the market post listing.

Large float























The list above is the recent IPO listing sorted by the public tranche available from shareinvestor (i think the data for Perennial is wrong). 

APTT is issuing such a large float (public and placement) that all investors who wants an exposure will probably get it. The large public share offering of 70m is also one of the highest in recent times. If you apply for the public tranche, there is a high chance of you getting it and in a "meaningful" way. I think it will probably be the IPO that ends the Singapore IPO window by sucking up all the liquidity.

What I like about the Company
  • Recurring business of cable TV and Broadband is pretty stable and everyone needs a connection to TV and Internet nowadays.
  • Increasing distribution yield projected from 7.5% in FY2013 to 8.5% in FY2014
My Concerns
  • This is a competitive industry in Taiwan and price competition can get messy and this will affect the distributions. I am not sure of the legal dynamics governing this industry in Taiwan either.
  • Highly leveraged company (67%) and an increase in interest rate will affect this company in future. Don't assume this low interest rate environment is going to last forever. 
  • IPO investors are buying in a intangible asset (Cable TV license) and paying a high EBITDA multiple for this.
  • The Sponsors only own 3% of APTT after the IPO and yet continue to receive management fees and performance fees. I am not sure if the interest is truly aligned.
  • The float is way too big and there is enough demand to make everyone happy, which means upside potential is probably limited. 
  • I think 7.5% in FY2013 is too low for an infrastructure asset. Private equity investors into infrastructure funds will demand a higher return than this.
  • Post IPO, MIIF will continue to hold a significant chunk (to the tune of 525,866,849 units if all MIIF shareholders elect to receive cash) and this will cause a huge overhang on the share price as they need to divest those shares in order to be delisted from SGX (and i don't think they are subject to any lock up since investors who elect to receive units will not be subject to lock up).
Conclusion

I don't know how to appreciate this company and will leave it to investors (such as the cornerstone) who knows how to better appreciate it. I will give it a "chopped chilli rating" but unfortunately, i will probably be vested with some shares from my broker. ^_^

Comments

fqfeq said…
Nice Analysis there.. Plus the over-subscription (demand hangover) is not impressive..

Much pessimism across forums.. lol not going to support it too!

I think better yields can be achieved through Croseus/Perennial Trust..
Mr. IPO said…
haha this prospectus is actually not easy to read... read until quite blur
Anonymous said…
Ha! Ha!
Simple, just take cash and run.
Anonymous said…
If an Ah Beng were to steal a packet of chocolate from a super market, he would be sent to jail.

If a brainy guy with bright ideas were to make hundred of million dollars, he would be called Wallen Buffat...
lzw said…
Despite the hoo-hah over the MIIF management's supposed incompetence and lack of ambition, the stock actually delivered great dividend yield in the last 2 years when I held it - I cashed out when it peaked recently, before it traded ex-divestment rights

Now I am wondering if I should jump back into the fray by applying for the APTT IPO. Especially with all the dividend stocks' yield compression right now.

(By the way, even if I knew the cash disbursement amount, I'd still have cashed out, because MIIF's remaining assets have no future, to say the least)
Anonymous said…


[[ anonymous 7 ]]


So, I wonder if this whole thing (offering) is slightly mis-shaped.

Mis-shaped In what sense?

Lets say this IPO was an IPO of bonds instead of shares (or "units"). Maybe even convertible bonds.

If so, I think I will go for these bonds, or even convertible bonds.


Analysing it from a credit stand-point as opposed to an equity (ie shares) stand-point, I think the benefits of a bond-like offering are better.

The question I raise is whether such infrastructure offerings should be offered as "bonds" as opposed to "shares".

Obviously the likes of Sheng Shiong should be floated as shares, but should infrastructure issues be floated as shares as well?


Anyway!





Mr. IPO said…
I guess the regulations have to change to allow for "mini" bond offerings and investors need to be educated as well. But frankly given this highly levered structure, the bonds still rank behind the bank debts.

Unless u replace the bank debt with bonds as well but that will effectively lower the bond yield as bank debt is probably quite cheap now.
Gartside said…
First, take the cash. Your analyis shows that APTT is valued a 13x EBITDA whereas MIIF had been valued TBC closer to 11x EBITDA.

There are better handle in which to risk your money and get a risk adjusted return. If you can short the stock, do so.

MIMAL, a related party to the Trustee-Manager, and MIMAL had a performance deficit of $600 million in MIIF. Is this one great reason for Macquarie to swap out of MIIF and into APTT, i.e., to wipe out the old performance deficit? But, it is not a good reason for old MIIF shareholders to swap into APTT because old MIIF shareholders are well underwater and MIIF shareholders will be paying a bonus to Macquarie as per the revised fees negotiated by CIMB. (Did someone just wisper conflict of interest?)

By the way Mr. IPO, have you been able to figure out how the alleged use of proceeds ties with the purported future cashflow? I am sure you have seen the numbers are opaque and do not balance unless you add debt, without which the proposed dividend (nice graph for those with poor vision!) will not be possible. The only way to have seen the true sources and uses would have been via a pro forma balance sheet, which was not provided. (Convenient, isn't it? Seems both MAS and SGX-ST should have asked for this in the prospectus as part of requisite disclosure.)

One final comment, when private equity funds invested in the Taiwan cable arena, they made double digit IRR returns into the 20's. So sorry those MIIF shareholders who had a buy and hold strategy. I hope they have learned something and do not wish to pay twice for the same lesson.
Anonymous said…
Hi Mr IPO,
How many lots have you been given by your broker ?? And have you also been alloted some for Soilbuild ?
Mr. IPO said…
Results not out yet for me. Nothing for Soilbuild.
Anonymous said…
Hi just wondering if there is the new Capitaland Convertiable Bonds are open to the public or are they in large lots for 250000 each?
YC said…
Gartside, nice observation on lack of proforma BS. Great analysis on EBITDA multiples too.
Anonymous said…
Mr IPO,

Mind to share with us how many lots you have been allotted for APTT ? Many thanks.
Mr. IPO said…
Not sure yet. Will only know on Monday due to potential clawback from MIIF shareholders.
Anonymous said…
Monday is the closing date a little too late? It would be good if we can know of the allocation before making a decision whether to apply or otherwise. Please do let us know if you have any inkling relating to the number of shares given to big timers.Tks.
Mr. IPO said…
I think my last comment on my concern is wrong. If MIIF unit holders elect to receive cash, the aptt will sell more units. If they elect to receive units, then less shares will be available.
Anonymous said…
Mr IPO,
Will you be trying your luck at the atm, or waiting to buy cheaper when it is listed ???????