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Tuesday, 30 December 2014

Singapore IPOs Tikams for 2013 and 2014

I am sure this is a blog post which readers will be interested to read now that 2014 is coming to an end and there are no more upcoming IPOs. 

I first blogged about the performance of my IPO tikams in 2012. The post was here. In 2012, i made about $4,923 from my IPO tikams.


In 2013, I didn't blog about it but it was actually a good year for me. I made about $23,467. The top 5 contributors were:
  1. Linc Energy $6,165
  2. Mapletree Greater China Trust $4,681
  3. Money Max $4,654
  4. Kris Energy $2,391
  5. Logistics Holdings $2,158

How did 2014 fare? The IPO market in SGX for 2014 is actually quite bad. I think SGX has somehow lost its way...... and is unable to attract good companies to list here. HKSE is definitely the flag bearer in Asia, due partly to its proximity to China.

Funnily enough, I actually had a good year. However, i don't think the performance can be repeated unless SGX is able to attract quality IPOs to list here or i managed to get placement shares in better IPOs in 2015. 

2014 was very unusual because i managed to get out-sized placement shares in a few stocks and had been lucky enough to 'run road' fast enough with a profit. (Do note that this route can easily back-fire as well). My returns for 2014 is $31,093. You can see that the top 3 contributors made the most returns for me.
  1. QT Vascular $12,817
  2. KOP Limited $12,098
  3. UG Healthcare $4,696
  4. Starburst $1,876
  5. JAPFA $525
I also incurred losses from EMAS Offshore but thankfully, i cut loss very quickly given that i have given it a zero rating.

That's all for now. Here is wishing a readers a Happy 2015 and may 2015 IPOs be a good year for you too.

Happy IPOing

Thursday, 11 December 2014

Keppel DC REIT - Balloting Results

Keppel DC REIT announced its balloting results this evening.

For the public tranche, it was around 9.6x subscribed.

Public Offer

Looking at the balloting table above, investors who applied for 100 lots will have a 50% chance of getting 23 lots....

Mr IPO's balloting results

Mr. IPO have not bathed for weeks.... and was unsuccessful despite a 50% probability of getting the shares.... :(

Placement Tranche

With regards to the placement tranche, nothing to shout about. Two Temasek related entities subscribed for the placement tranche and the independent directors invested in the REIT as well.

It will be interesting to see how the shares performed tomorrow.

Happy Data REITing.

Wednesday, 10 December 2014

iFAST Corporation - Balloting Results

iFAST Corporation announced a strong set of IPO subscription results where the shares were 12.4x subscribed. The over-allotment option was exercised and in this regard, an additional 3.28m shares were issued. This will be used to support the share price should it decline below the IPO price on debut.

Public Allocation

Public investors who applied for 100 lots will have a 40% chance and get 11 lots.

It is interesting to note that the directors came out in full force to support the IPO and that 3 other reputable investors subscribed for more than 5% of the IPO tranche. It's a pity they didn't disclose the number of shares alloted to them.

Overall, i am surprised by the strong subscription results and the CEO attributed to strong support by institutional investors, especially those from London.


Let's see if the IPO will perform to expectations tomorrow. 

Happy iFASTing

Sunday, 7 December 2014

Keppel DC REIT

Keppel DC REIT ("KDC" or the "Trust") is offering 261,138,000 units at $0.93 per unit (with over-allotment option). There will be 207.375m units for the placement and 53.763m for the public. There will also be an over-allotment option for 17.659m units. The IPO will close on 10 December at 12pm and start trading on 12 Dec 2014. The market cap will be around $1,116 million.

KDC is the first data centre real estate investment trust to be listed in Asia, further cementing SGX's position in the REIT sector. The IPO portfolio comprises of 8 high quality data centres located in key data centre hubs across seven cities in Asia Pacific and Europe.

Why Data Centres?

Have you ever been to the server room in your work place? You can imagine the Data Centre to be a "mega" server room where you need air conditioning, uninterrupted power supply, fire suppression, raised flooring, etc. In a new age space where data is now more "valuable" than voice, data centres look increasingly relevant. 

The charts below show you the growth in data and IP traffic.

Increasingly, companies are looking to outsource the in-house data centres to specialized centres. 

There are high barriers to entry due to substantial upfront costs and technical knowledge and expertise being required. Companies are outsourcing a critical function to outsiders, in this regard, they would prefer to outsource to a data centre providers with proven track record.

IPO Portfolio

It is good to see that the assets are diversified globally and not overly concentrated on a particular region. However, the Company will need to balance that with economies of scale.


According to the Finance Asia report on 5 Dec, the issue was priced at the top of the indicative range and was more than 10x oversubscribed.  It is interesting to note that allocations were largely determined by the management and were awarded on the basis of being known to the Company or have attended the roadshow. The units were spread fairly widely (not sure if this is a good thing) and 70% of the unit given to "long-only" institutions. In other words, not hedge funds.

9 Cornerstone investors subscribed to the IPO and they are Wellington Management, Fortress Capital Asia, Eastspring, DBS Private Bank, DBS Bank, SoilBuild owner Lim Chap Huat, Myriad Asset Management and Sing Haiyi's Gordon Tang. 

In addition to the cornerstone investors, some of the indirect investors will include

Dividend forecast

The increase in yield is purely from the build in rental revisions with any consideration from asset enhancements and acquisitions. The company intends to distribute every half-yearly and has to distribute more than 90% of its income given that it is a REIT.

I would say that this is a stock that can go into my long term SRS account for passive income.

Pipeline assets

It is good to see that the ROFR assets are located in existing locations. This will help the Trust to build up track record and economies of scale in those locations.

What i like about the Trust

  • I like the sector's macro trends where proper data management gets increasingly more critical. The world is now more on data than anything else. You can see that in cloud computing, online commerce and storage services proliferating globally.
  • The outsourcing trend continues whereby companies are outsourcing this function for better cost efficiency and expertise.
  • Data centres cost requires more capex and specialized knowledge and equipment. For many companies, the reliability of the data centres are more critical as it has an implication on the branding if the services are impacted. As such, clients are highly selective and sticky and are inclined to enter into long term contracts. The weighted average lease expiry of KDC is more than 7.8 years ensuring stability and recurring income. The customer retention rate is ~98%.
  • KDC's clients are diversified among the blue chip names who will pay for quality services.
  • Data centres don't have to occupy prime land but requires excellent network connectivity to be important. In this aspect, the Company will be able to house its equipment in cheaper locations as long as it meets the other technical requirements. 
  • The balance sheet is not overly geared at 27.8% with a strong sponsor in Keppel T&T.
  • No funny financial engineering like income support but with built in rental revisions in the contracts with customers that range between 2~4% on average. The rental revisions also helped ease some concerns of a rising interest rate environment.
Some of my concerns

  • KDC paid out cash to its shareholders prior to the listing... keke this is somewhat expected since they are selling you the hard assets and not the "cash" in it.
  • Any breakdown in services may result in law suits that is disproportionate to the rental received. For example, it was reported that the recent outage affecting SGX was from one of KDC's data centres. I am assuming that the compensation, if any, is likely to be covered by insurance.
  • The income earned in Europe and Australia may be subject to weakening forex rate against the SGD. While the prospectus mentioned that the foreign currency exposure will be hedge, there will be costs involved in such hedges and the "costs" are borne by unit holders anyway.
  • Investors are paying a slight premium to the appraised value by 1.07x and that benefited the prior investors, one of which is the Securus Fund (owned by Brunei). The NAV per share is $0.87.
Fair value

There is no direct comparable REIT with the same concentration in Data Centers. In this regard, i will use Ascendas REIT and Mapletree Logistics REIT as they have some data centers in their portfolio. According to REIT Data, they are currently trading at yields of 6.3% to 6.5%.

In this regard, the fair value range of Keppel DC REIT will be around 97c to 100c (versus the IPO price of 93 cents).

Mr IPO ratings

Please note that I have an immaterial 8 lots from the placement tranche and will likely apply for more at the IPO public tranche. 

I quite like this IPO. I think it is pretty unique and is priced to leave some upside for IPO investors. It will be a good stock to keep for passive income. I will give it a 2 Chilli Rating given that this is more of a yield play and is not going to give you a big pop (less than 10%). Investors are welcomed but flippers beware. There will be more long term upside if the Company is able to acquire and convert acquisitions into Data Centers.

Happy IPO clouding.

Saturday, 6 December 2014

iFAST Corporation Ltd

iFAST Corporation Ltd ("iFAST" or the "Company") is offering 32.8m new shares at $0.95 each of which 2.8m is for the public and the rest via placement. The IPO will close on 9 Dec 2014 at 12pm and starts trading on 11 Dec 2014. There will be an over-allotment option for 3.28m shares as well. Separate from the offering, there will be a 19m tranche for Cornerstone investors. The market cap will be around ~S$243.4m

Principal activities

iFAST is an internet-based investment products distribution and administration platform with AUA of ~S$5.13 billion as of end Sep 2014. It is headquartered in Singapore is present in Hong Kong, Malaysia and China. It has two primary portals which you may be more familiar with:
  1. As the name suggest, this is the place you can buy and sell funds at 1% (if i recall correctly). It was one of the game changers in the fund management industry where the bid-ask spreads for unit trusts used to be at least 4 to 5 cents. Consumers who invest in Unit Trust would have benefited from their presence. This is a B2C business model.
  2. iFAST Financial. This is a portal catered to the specialised needs of financial advisory companies and institutions. It currently has over 150 FA companies and FIs and more than 5000 FA representatives using its B2B platform. It has a 19.9% stake in an independent FA firm called Providend. 

If you distill it even further, it is simply a platform or gateway between products providers (fund managers) and the end consumers (investors). The picture below should be able to tell you what i mean. The only thing is you don't know how much such gateways are there in the market and according to the prospectus there is intense competition.  :-P

If you can read the picture above, you will see what IPO "story" they are trying to tell you. The key phrase is probably establishment of China operations in 2014.

Competitive Strengths

I have to tell you that i was pleasantly surprised to receive an invitation from iFAST (cold email below) to attend their IPO briefing. This means that my blog is also gaining traction in the local IPO market as well, maybe i can sell my web address and retire soon... or maybe they want me to be kind in my analysis :-P

Anyway i have to say the summaries in the prospectus are easily understood that i can just copy and paste. Save me a lot of time. The investment thesis are below and why they think you should invest in them.

The 2 key messages you should look out for are "scalable business model" given it is an internet platform and "recurring revenue" which is driven by the Assets under Administration. This accounted for 81.6% of the net revenue since FY2011.

Financial Highlights

This is an easy to understand business where revenue is "sticky". I am not a user for their platforms so i can't comment on its user friendliness but it seems like once you use the services to buy and sell funds, you are unlikely to change the service provider. A competitor will be the POEMS platform by Philips Securities. 

Being an internet platform which is 24/7, once you reach certain critical mass, the infrastructure costs largely remained constant and any new investors acquisition will add to the top and bottom line. 

In this regard, i like the predictability of the revenue. However, they didn't give the same predictability on their dividend policy. As such i am not sure if the 60% net profit after tax as dividends will continue beyond FY2015. As it is, the Company intends to distribute 60% of its Q4 profits and FY2015 profits as dividends. It will be interesting to find out if they will distribute on a quarterly basis.

The 9M2014 profit from operations continue to show good growth momentum by growing more than 40% compared to the same period last year to ~$7.6m. My own forecast is the net profit will range between $10.1m (9M14 divide by 3 x 4) to 11.5m (FY2013 x 1.40). For the purpose of my computation, i will assume profit grow 30% to $10.7m. That will translate into a post IPO EPS of 4.18 cents, implying a PER of around 22.7x. 

Assuming EPS continue to grow by 30% in FY2015 (i am guessing), the EPS will be around Singapore 5.43 cents. That translate into a forward PER of 17.5x and a dividend yield of 3.4% based on 60% payout. The adjusted NAV per share is around 24.75 cents. 

A China Growth Story?

You can see from the chart above that Singapore continues to be a dominant market place with 75.5% of the AUA. The Company mentioned that it established operations in China this year. It will be an interesting strategy if they can execute well in China as that is where the potential future growth will come from. 

The Company will raise at least S$49.2m from the IPO proceeds and the bulk of it will be used to expand into China ($7m) and for Mergers and Acquisitions ($27.2m). It seems like they already have some targets in mind given the M&A budget forms 55% of the proceeds raised.


The key shareholders are Lim Chung Chun (18.33%) and Lim Wee Kian (7.35%). They also have interesting shareholders like Singapore Press Holdings (15.88%) and Fidelity who subscribed for the cornerstone shares together with a GIP fund under OWW Capital. While the cornerstone are not subject to any lock up, the rest of the shareholders (~61.55%) will be under moratorium for 6 months.

One thing to note is that DMG divested its entire shareholding at $0.83 per share in Nov 2014 before the IPO.

What i like about the Company
  • High recurring income nature and scalability of the business
  • The "promise" of China as a growth catalyst as more China investors become affluent and educated and prefers the DIY style of investing in funds.
  • Simple to understand business model
  • The company is profitable and paying dividends. 
  • Good cornerstone investors coming in to subscribe at IPO price
Some of my concerns
  • The IPO valuation is rich and fully priced in for growth in the near term
  • Execution of the China strategy is still an unknown
  • 13,224,996 options issued at various exercise prices at 60c or lower represents a dilution to IPO investors who subscribe at 95c
  • While the low number of shares allow them to do the placement well, it also means that it is highly priced literally at 95c. I am not sure if the local retail investors will be able to appreciate that. High valuation and high price. 
Mr IPO's ratings

Please note that I have an immaterial 7 lots from the placement tranche.  

I am actually quite mixed in feelings with regards to the ratings I am going to give. On one hand, I like the simple business model, dividend paying mentality and the idea of expanding into China. On the other hand, the Company is priced richly to internet companies and the valuation is probably richer than Apple. However, a rich valuation is a powerful currency to do M&A and that will help accelerate the growth of the Company. 

In this regard, I have to give it a 1 Chilli rating. Buy only if you are comfortable with the long term prospects of this business model and the expansion into China. However, don't expect a price pop on the first day. It will probably take a while for the market to find a price equilibrium. 

Friday, 5 December 2014

UG Healthcare - Balloting Results

UG Healthcare announced its balloting results where its overall IPO was 11.5x oversubscribed.

The balloting results are as follows:

It is quite difficult to get the shares from the public tranche and if you apply 100 lots, your probability is around 11% and you will get 10 lots.

It is interesting to note that the placement tranche holders are Centurion Private Equity (the outfit from Han Seng Juan and David Loh). I have not seen KSC (S) Pte Ltd nor Lim Hoe Kok before. If you know who they are, please tell me. hahaha

UG Healthcare should do well on debut. 

Happy IPOing.

Huationg Global Limited

This is more for records purposes

Huationg Global Limited ("Huationg" or the "Company") is offering 27.5m shares at $0.20 each for placement for a listing on Catalist. The offer has closed on 5 Dec and will commence trading on 9 Dec 2014. The market cap based on the IPO price will be around $30.3m

Principal Activities

The Company is engaged in the provision of civil engineering services for infrastructure projects and ancillary inland logistics support services. As of the date of the prospectus, the Company has an order book of S$114.3m which will be recognized as revenue over the next 3 years.

I list the major ongoing projects above for your information.

Financial Highlights

Based on the adjusted EPS of 2.79 (assuming service agreement is in place and post IPO shares), the Company is listing at a PER of around 7.2x, which is reasonable. Based on the 1H 2014 EPS of 1.98 cents, it represents a growth of 49% over the prior year. 

Assuming full year EPS is 25% growth, the EPS will be around 3.49 cents and that translate into a PER of ~5.7x. Having said that, i am just "guessing" the EPS figure and is not privy to how the full year results will turn out.

Interestingly, the NTA per share is 24.69 cents. In other words, the Company is listing below its book value.

Mr IPO ratings

I will skip the what i like about the Company and my concerns since the IPO has already closed. Regular readers know i don't like this sector per se and that it is such a small cap family-owned company. The Ng family will continue to own ~80% of the Company post IPO, perhaps this is one reason why they are fine with a "lower than market" IPO valuation.

I have to say the IPO is priced very reasonably, as such i believe there will be some upside to the stock price. My gut feel is that it will trade between 23 to 28 cents (slight premium to its NTA) but liquidity will dry up over time.

Happy digging

Thursday, 4 December 2014

mm2 Asia Ltd

mm2 Asia Ltd ("mm2" or the "Company") is offering 37.4m shares comprising 31m new shares and 6.4m vendor shares at $0.25 each for a Catalist listing. The IPO will close on 5 Dec at 12pm and starts trading on 9 Dec. There is no public tranche. The market cap is $51.7m based on the IPO price.

Principle Business

The Company is headquartered in Singapore and is a movie/content producer and distributor. Beside income from producer's fees, government grants and distribution fees, the Company can also earn products endorsement fee (which you can blatantly see in movies such as Transformers and Ironman).

Since inception, the Company has produced or co-produced and/or distributed 20 movies and i am sure many of us in Singapore has watched the above 2 movies co-produced with Jack Neo entitled "Ah Boys to Men". I believe the next movie from Ah Boys to Men 3 - Frogmen will continue to be a hit. The Company has also announced its pipeline on TV last few days such as SG50 project and "3688" produced by Royston Tan who achieved fame through the movie "881". The pipeline seemed to be quite full all the way till FY2016.

Financial Highlights

While it is good to see a nice uptrend in terms of revenue and net profit, the Company started from a low base. Q1 2015 is off to a good start with net profit reaching $1.85m versus a loss in the prior quarter. Frankly, i do not know how to forecast the revenue and profit as they are very projects based. Each movie is a project and whether you can make money or not is a big unknown, otherwise, we would have the "movie flops". Given the Q1 profit is already 67% of FY2014 profit, i will hazard a guess that FY2015 will likely be a good year for the Company.

To be "conservative", i will use FY2014 fully diluted EPS x 2 as the projected EPS for FY2015. That translate into a fully diluted EPS of around 2.66 Singapore cents, implying a PER of around 9.4x.


Melvin will continue to own 63% of the Company post IPO and some of the pre-ipo investors included producers like Jack Neo! The pre-IPO investors came in at around ~16 cents.

What i like about the Company
  • The Company will be the first local content producer to list on SGX (after foreign owned Spackman). Please support local produce :-P
  • Retail investors will likely be more familiar with Ah Boys to Men than some foreign films and identify with the Company better
  • The Company seemed to have a healthy pipeline of projects for FY2015 and FY2016.
  • The Company is expanding outside Singapore. Hopefully, they can establish a strong foothold in the Chinese market.
Some of my concerns
  • Currently the Company received grants from government for locally produced movies that meet certain criteria. The government grants may not last forever.
  • The IPO is launched at high valuation in terms NAV. The NAV is approximately 7.23 cents versus the IPO price of 25c. However, in terms of PER, while the historical PER is high at more than 16x, the forward PER is likely to be more reasonable at around 9-10x (I am guessing).
  • The key founder, Melvin Ang, is selling some vendor shares at IPO. While I don't like to see that, it is still "not wrong" as that is his only way to monetize and he will still own a substantial chunk post IPO. 
  • The movie production scenes in Singapore is on the whole improving but still quite far off from making blockbuster movies. There are probably a few known names to collaborate with and some may not want to work with mm2. 
  • Our local producers have been very successful in winning Cannes Films awards but I would rather they produce a blockbuster movie anytime to bring our industry up a notch globally. 
  • We have a very small market. Even the movie from boys to men part I and II couldn't gross above $10m each. The only way for the Company to succeed is to co-produce or distribute movies that will sell like hot cakes in China. As such, the Company needs to execute well in its China strategy.
  • Making movies is a "binary option". The chance of producing a flop is high. So the company will have to pick their "producers" carefully. 
Mr IPO's rating

To be honest, i don't really know how to rate the Company. The Company is like a start up company. While movie productions can be a risky business, it can also be a lucrative business if the Company is able to produce a blockbuster movie, especially in China. As such, a lot will depend on how the Company mitigate its risk in each movie production and whether it can come up with exciting titles which the audience wants.

I will give it a 1 chilli rating. Since there are no public tranche, the rating is purely for information. Mr. IPO took up 10 lots in support for our local movie industry. 881 Ah...

Saturday, 29 November 2014

UG Healthcare Corporation Limited

UG Healthcare Corporation Limited ("UG" or the "Company") is offering 28.8m shares comprising 1.8m shares for the public and the rest via placement at $0.215 each for a listing on Catalist. The IPO will end on 4 Dec 2014 at 12pm and starts trading on 8 Dec 2014.

Principal Business

The Company is an established glove manufacturer based in Malaysia for natural and nitrile examination gloves. UG has 2 manufacturing facilities in Seremban Malaysia and a capacity of up to 1.3 billion gloves annually. The Company has established a distribution platform in USA, UK China, Germany and Nigeria and its products are sold in more than 50 countries.


UG has its own brand called "Unigloves" and also OEM for other labels. In additional to gloves, the Company distribute ancillary products like surgical, vinyl and cleanroom gloves.

Financial Highlights

The revenue and profit for the year has been increasing steadily. I like the fact that the revenue are quite well diversified among the various regions.

The gross margins has been increasing steadily from 14.9% in FY2012 to 20.8% in FY2014. The improvement in margins can be attributed to lower raw material prices, changes in product mix and economies of scale in production.

The Company is listing at an adjusted PER of 8.5x (based on post IPO shares and assuming service agreement is in place) and a price to book of 1.15x. The adjusted NAV post listing is around 18.7c. The market cap based on the IPO price is around $40.4m. Given the revenue is around $49m, the listing is made at around 0.82x revenue.

Dividend Policy

The Company only intends to pay out at least 20% of its net profit after tax to shareholders from FY2016 onwards. While this is disappointing to some investors, i would say that this is actually the right thing to do given that the purpose of fund raising is to expand the capacity and they can put the cash to better use at this juncture.

Use of Proceeds

It is good to see that the majority of the funds raised will be used to expand production capacity.


The Lee and Ang families will continue to own more than 75% of the Company post IPO. There are only 2 pre-ipo shareholders in Tommie Goh and Jeremy Lee. They came in at around 14.9 cents. Let's see if they can "work" some magic on the stock price post IPO but don't for once think they are going to be long term investors. Only around 18.89% will be freely traded post IPO while the balance will be under moratorium. (Don't even try thinking of shorting the stocks...)

Peers Valuation

I have done some simple forecast based on the capacity coming onstream and at the same utilization rate and margins. It's done very rudimentary so read it with a pinch of salt. 

The peers are trading at much higher valuation, however they are of a much bigger size. Technically, the peers should acquire UG Healthcare as it is accretive to their EPS.  Assuming i take a huge discount on the peer valuation and mark the fair value at between 11-14x PE and i use the historical EPS of 2.61 cents for conservatism, the fair value should be around 29 to 37 cents. Implying the stock is of good value even at the IPO price of 21.5 cents

What I like about the Company
  • I like the indirect exposure to the healthcare sector. The sector is likely to continue growing in the foreseeable future where living standards and hygiene levels are increasing. It is a resilient sector where you need healthcare services in good times and bad times and you need protective gloves all the time.
  • The Ebola viruses breakout just highlight how vulnerable our world is to diseases and such protective gears are all the more important.
  • Gloves manufacturing seemed to have found a natural home in Malaysia given its proximity to raw materials. The low manufacturing cost base in MYR and selling in USD seemed to a great natural advantage. The drop in oil prices should also bode well to lower the production costs of nitrile latex (synthetic rubber).
  • UG has clear expansion plan and the first and second phase of expansion is expected to complete by Jan and July 2015. Production will increase to 1.5b and 1.9b gloves annually at the end of each expansion phase. The Company believes it will be able to accept more orders from customers and increasing market demands.
  • The Company's revenue and profitability are increasing annually.
Some of my concerns
  • Would have preferred the auditors to come from a big 4
  • Keen competition from other gloves manufacturers in Malaysia such as Riverstone, Kossan Rubber and Hartalega. Will they try to acquire UG Healthcare or kill it off?
  • Weak market sentiments for small caps due to the plunge in prices for oil and gas stocks. 
  • Will liquidity dry up over time?
  • Family run business means making changes to the structure can be more challenging
  • It's a small cap stock based on its IPO valuation. That will create some issues for fund managers as they may not be able to invest in ultra small cap stocks due to lack of liquidity. It will need to execute well on its expansion plan before fund managers will take a stake in it. 

Mr IPO ratings

Please note that Mr. IPO is vested with 100 lots from the placement tranche and thus the rating is super biased. 

I am giving this counter 3 Chillis for this IPO for the following reasons. 
  • The Company is issuing its IPO at very reasonable valuation. I think it could have easily commanded a better market cap given where the peers are trading. I think IPO flippers should be able to "hit and run"
  • The clear expansion in capacity and the listing status will help drive revenue and profits going forward. 
  • The company attempts to have a public tranche which is highly commendable as they have no need to do that for catalist listing. As such, i will reward it with an extra chilli.
  • It is indirectly linked to the healthcare sector. Readers know I had previously blog about Riverstone in my SRS blog and how i exited too early before it ran up spectacularly. Maybe this is a "second chance" for me?
Over the longer term, it will really depend on whether the Company is able to execute its strategy.

Happy IPOing

Sunday, 16 November 2014

Trans-Cab Holdings Ltd.

Trans-cab Holdings Ltd (or the "Company") is offering 168m shares comprising 65m Cornerstone shares, 94.2m Placement Shares and 8.8m Public Shares at $0.68 each. Out of the 168m shares, 153m will be new shares with the balance vendor shares. There will be an over-allotment option of 20m shares. The IPO will close on 18 Nov 2014 at 12pm and starts trading on 20 Nov 2014.

According to the prospectus, the Company is the second largest taxi operator in Singapore by Fleet Size. In case you have never see a TransCab before, this is how it looks like. A striking red brighter than what you normally see in Hong Kong but with the same sense of familiarity.

This is a simple business so i will not have to explain much. The Company is a taxi operator and acquire and rent out taxis to licensed taxi drivers. According to the prospectus, there are 4 investment highlights, namely:
  1. Favorable industry trends and outlook - 
  2. Ability to retain and attract taxi drivers
  3. Ability to capitalize on economies of scale from fleet renewal and expansion
  4. Experienced and Committed Key Management Team
In case you don't know, Trans-cab was owned by a Union Energy and was granted a taxi operation license only in 2003. The founder, Mr. Teo Kiang Ang, is a secondary school dropout and made a living delivering gas cylinders. His company, Union Energy Corporation, controls more than 30% of the bottled gas market in Singapore and has annual revenue of $130m. A rags to riches story! If you want to read his inspiring story, it can be found here.

Financial Highlights

The Company has shown an increasing trend of revenue and profitability growth for the last 3 years. Probably it has reached an inflection point where it makes sense for the founders to get it listed since the growth will start to "stagnate".  

Having said that, the HY2014 numbers continue to show growth of around 20%. Given the stability of this business, I will hazard a guess that the EPS for FY2014 will be between Singapore 6 cents (doubling of 1H2014 adjusted EPS) to 6.48 cents (growth of 20% of adjusted EPS from FY2013). Given that there are some listing expenses and profit sharing to be accounted for and for simplicity, i will use Singapore 6 cents for FY2014 and 6.5 cents (FY2013 adjusted EPS of 5.4 cents x 20% growth) for FY2015.  

Based on the forecast adjusted EPS of Singapore 6 cents, the forward PER is around 11.3x for FY2014 and 10.5x for FY2015.

Dividend Policy

The Company intends to distribute not less than 15% of it profit after tax for FY2014 and dividends of not less than 60% of its PAT for FY2015.

Based on 6.5 cents for FY2015, the forward looking yield is actually very decent at around 5.7% (which explains why the insurance-linked asset management companies linked to Prudential and Great Eastern are buying into this stock as it more than matches the liabilities of the insurance policies they have on hand).

What i like about the Company
  • While you may argue that the industry is competitive, it is actually a controlled and regulated industry. There are currently six operators in Singapore. The number of licenses to operate are likely to be limited to a few key players and unlikely to increase any more. As LTA is trying to raise the operating standard, I wouldn't be surprised to see some consolidation going on among the smaller taxi operators as you need economies of scale to operate a profitable business. 
  • Strong take up rate by Cornerstone investors of about 9.4% of the Company. My initial read of the list of cornerstones are more of the long-only investors (Great Eastern, Prudential) and less of the "subscribe and throw" hedge funds. Please do note that they are not subject to any lock up. The IPO has also been priced at the top end of its range due to strong demand
  • Well integrated verticals. The Company owns their own vehicle workshops, have lower diesel and CNG pump prices for its drivers and also invests in fuel efficient taxis. So far the trans cab taxis i took from the airport are the hybrid vehicles and they are usually very "green" vehicles that are fuel efficient.
  • Stable business and high visibility of recurring income. While there are many taxis plying the roads of Singapore, the income is highly predictable and recurring in nature. People will still use the taxis in good weather or bad and in good times and bad. With Singapore rated as the top Lonely Planet destination for 2015, the tourism industry will likely to continue booming and this bodes well for the sector. 
  • The existing owners' interest continue to be aligned with the new investors. They own about 72% of the Company and will likely continue to pay out high dividends.
Some of my concerns
  • Disrupting technology. I have shared with you my prior experience with Uber in United States. In Singapore, the "car sharing" concept has not been accepted by the authorities. Otherwise, it will affect the livelihood of the taxi operators and companies.  Instead of Uber, Grabtaxi is the more established player here. Here is an old article on why Grabtaxi is giving Comfort Delgro a run for its money. Grabtaxi is partly owned by Temasek. Trans-cab should learn how to embrace such taxi apps (instead of creating its own) and worked in partnership with them. However, if the industry is liberalised here to the extent it is in United States, the taxi operators will be in deep trouble.
  • Changing regulations. If LTA continues to come up with new and more difficult operating KPIs, the Company may have difficulty complying and this will impact its license. 
  • Limited scalability. While the Company intends to increase its fleet to 5,234 by end of FY2015 and tender for bus routes in future, Singapore is a small island and the number of taxis are highly limited. It is difficult to scale up the business in a meaningful way. Venturing into bus routes is an unproven business. 
  • Investors are paying a high 62.5% premium to NAV for depreciating car assets and taxi operating license in exchange for future earnings. I am actually fine with this but just included here in case you share the same concerns. 
  • The two CEOs are very well remunerated and will receive between $1.25m to $2.25m per year before performance bonus. Probably this is not unusual given that they could have kept all the earnings of the Company of it continues to be privately held. 
Fair Value

Comfort Delgro and SMRT are trading at much higher valuations. Given they are "giants", I will not use the same metrics on Trans Cab. However, relative to them, Transcab is more attractively priced although I wouldn't call it a value buy at 11x PE. 

Assuming a fair value of between 12-14x PE for FY2015, the fair value trading range will be 78c to 90c. 


I will give it a 3 Chilli ratings given its relative better value against its peers, strong cornerstone investors, high recurring income predictability, strong cashflow and good dividend yield. It may be a good hedge against rising transport costs for the longer term too. 

Hoot Ah! Happy cabbing. 

Please note that Mr. IPO is vested with 14 lots from placement and intent to apply for more at the Public Tranche. 

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