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Saturday, 26 April 2014

QT Vascular - Placement results

The placement results for QT Vascular throw up an interesting surprise.

In addition to the substantial shareholders who continue to support the company such as EDB and Johnson and Johnson, there is a new shareholder just below 5%, Asdew.

Asdew Acquisition - Alan Wang took a very substantial stake in the Company. He is the same person behind very Hankore placement before it more than doubled from 5c.

There is another investor called Havenport which I have previously blog about, founded by the team at Legg Mason.

Let's see if the 2 new substantial shareholders can perform some magic to the counter.

Thursday, 24 April 2014

PACC Offshore Services Holdings Ltd - Balloting Results

The balloting results is finally out at 10pm.

Please find below the balloting table for the public tranche.

While the chances to get is almost 68% to 100%, at least they are kind enough to give you less than what you asked for. Investors who applied for 50 lots will almost "guaranteed" to receive about 11 lots.


The over-allotment issue is also triggered, meaning that the stablizing manager will buy if the share price drops below the IPO price of $1.15.

Institutional Investors

The institutional investors are almost "absent" except for Lion Global (under OCBC/Great Eastern) and under Fullerton Fund Management Company. I don't think they will be of much an impact to the debut.

The shares will start trading at 9am tomorrow morning.

Happy IPOing if you have bought.

QT Vascular Ltd

QT Vascular Ltd ("QTV" or the "Company") launched its IPO via placement only for a listing on Catalist. The prospectus is here. The Company is issuing 196,429,000 shares at 28 cents each. The IPO will close on 25 April 2014 at 12pm and list on 29 April 2014. 

The market cap of the Company at IPO price is S$211.6 million. This is 'spectacular' for a loss making company. Let's find out if there are any reasons why.

Principal Activities

The Company is engaged in the design, assembly and distribution of advanced therapeutic solutions for minimally invasive treatment of complex vascular diseases. 

I have to tell you that i know "nuts" about this Company even after receiving a 20 minute download from the deal maker except for one key takeaway. For anyone who needs a heart bypass, this Company's products allows for non-invasive treatment and patients recover faster as it "leaves nothing behind" (if i remember correctly). However, I will not pretend to be an expert!

Product Portfolio

This Company somewhat reminded me of Biosensors. A biotech company is as good as the products that has already been developed or are currently in the pipeline. Since i am no bio-tech expert, i will just cut and past the product portfolio below. Hopefully, the biotech sector in Singapore will get a boost from QTV listing and attract more companies here. Example Singapore Exchange is now a hub for oil and gas companies as well as REITs.

Anyway, the certification path is never easy, especially those to be certified by the US FDA. Probably the most "advanced" product in its portfolio is the Chocolate PTA. For those chocolate lovers, hope this will not turn you off. The clinical results are below for your convenience but as in all prospectus, read it with a huge pinch of salt.

Competitive Strengths

The Company listed so many competitive strength. I copy and paste here for your convenience since i have no expertise in this field.

How to validate that QTV's products has potential?

Since i am no expert in this area, who can i rely on to "validate" QTV's potential?

Cordis Corporation

Cordis is a wholly-owned subsidiary of Johnson & Johnson. J&J is listed on NYSE. Cordis has been appointed as the distributor for QTV for the Chocolate PTA in the United States. J&J is likely to be a potential acquirer of QTV should the Company's products be very successful in future. 

Established and Reputable Substantial Shareholders

The 3 substantial shareholders are Three Arch IV LP, Luminor Pacific Fund I Ltd and Biomedical Sciences Investment Fund Pte Ltd ("BMSIF"). BMSIF is a wholly-owned subsidiary of EDB Investments.

Each of Three Arch Partners, BMSIF and J&JDC intends to subscribe for Placement Shares. J&JDC stands for Johnson & Johnson Development Corporation, a wholly-owned subsidiary of Johnson & Johnson and it intends to subscribe for more than 5% of the Placement Shares.

The fact that the substantial shareholders, especially a strategic partner like Johnson & Johnson is willing to invest further in the Company's IPO will provide much comfort to "ignorant" investors like myself. The list of shareholders for your information. 

If you looked at the Pre-IPO investors, the "who's who" in Singapore are all there. Are they are in this for a long run or a short flip? Only time will tell. Seemed like the pre-ipo investors are smarter, coming in at around 15.5 cents.

Financial Statements

I will not dwell deeply into the financial results as this is a loss-making company. The US$29m loss for 9M 2013 comprised of net finance costs of US$16.2m which is due to fair value changes on liabilities that hits P&L directly.

Use of IPO proceeds

What I like about the Company
  • The Company is in the biotech sector which seemed to be a growing sector
  • The products pipeline seemed to be on track for more FDA approvals
  • The existing shareholders are not cashing out and are adding new positions. Their average cost per share is close to the IPO price

My concerns
  • Whether the products and its future pipeline can receive FDA approval eventually as such certification takes a long time!
  • Loss making company with a huge premium over its NTA of 9.6 cents
  • Low shareholding held by the CEO and management team
  • All the funds investors will want to exit in future!
My Conclusion and Rating

I have already caveat that i know nuts about this sector and i don't really like loss making companies. However, having said that, the demand for the placement shares were very hot during book building. As such it is likely to open above its IPO price. I will give it a 2 Chillis rating purely for hit and run if you managed to get some placement shares at the IPO price. If i have to hazard a guess, the opening range will probably be between 33-38c. Happy IPOing. 

Please note that Mr. IPO is vested and will run road at the first instance....

Saturday, 19 April 2014

PACC Offshore Services Holdings Ltd

PACC Offshore Services Holdings Ltd ("Posh") is offering 252,020,000 shares at S$1.15 each. The prospectus is here. The international offer will have 212 m shares and the public offering will be 40m shares. Separate from the offering, Cornerstone investors have subscribed for 85.605m shares. Depending on the demand, there is an over-allotment option of another 46.125m shares for price stabilization. The Company will have a market cap of around S$2.038 billion. The IPO will close on April 23 at 12pm and starts trading on April 25.

Principal Activities

Posh is the largest Asia-based international operator of offshore support vessels and one of the top 5 globally with 112  diversified OSVs with the breakdown shown below. It also has one of the youngest AHTS and PSV fleet, which means they are more fuel efficient and environmental friendly.

Financial Highlights

The table below shows the audited performances for the last 3 years. While it is impressive that even though revenue has stagnated, the margins has actually improved as shown by the increase in net profit over the same period. The question to ask is why have the revenue stagnated? Is it due to falling chartering rates? What is this Other Operating Income that has increased so substantially during this period? Is it sustainable?

Based on the total number of shares of 1.82b shares and assuming a forex of 1.25, the EPS for 31 Dec 2013 is around Singapore 5.04 cents. At the IPO price of $1.15, the historical PER is around 22.8x. This is really not cheap. According to the research report by BOS, the forward PER (using the IPO price of $1.15) is around 8.9x. Although this is possible looking at the CAGR  67.4%, i am frankly not sure as I am not privy to the assumptions used. The report is sourced from Singapore Stock Market News.

According to note 22 of the audited financial statements, the other operating income is as follows. Not exactly impressive or sustainable to me.

It is also interesting to note that the Company has obtained "charter-free" valuations for the vessel that it owned. This typically means that if the Company sells the vessels with an existing chartering contract, it will fetch a higher sale price. However, having said that, there is a big "goodwill" asset of US$295m sitting in the balance sheet which i don't like. Why am i paying for that "goodwill"? 

What I like about the Company
  • Large diversified fleets provide capability for value-added services and comprehensive solutions to clients.
  • Proven international track record in many countries and region globally. 
  • Strong links to the Kuok empire. The empire includes names like Kerry Properties Limited, Shangri-la Asia Ltd, SCMP Group, WIlmar International, PPB Group Berhad and Malaysian Bulk Carriers Berhad.
  • Established reputation with Oil & Gas players and have long standing relationships with Saipem, Hyundai Heavy Industries, SapuraClough Offshore.
  • Highly experienced and proven management team. CEO has more than 40 years of relevant experience. It is professionally run and has no family members sitting anywhere.

My Concerns
  • The Company has been on a huge expansion track. Any change in macro demand will result in over capacity and may cause a drop in the chartering rates
  • Stagnating revenue. The profit growth seemed to be due to "Other Operating Income" of asset sale and forex gain. Are they sustainable?
  • As a result of expanding, the Company will be constantly in need of cash and the growth has been largely financed by borrowings. This will probably mean that dividends may not be paid for the foreseeable future
  • Robert Kuok is a shrewd businessman. Like all true entrepreneurs, he will out to max out the value he can get from the IPO, which probably mean the Company is fairly or over valued.
  • The NAV per share (before accounting for goodwill) is around $0.81 versus the $1.15 paid by investors.
Future Growth Strategies

The Company intends to use the net proceeds from the IPO to pay down debt, expand fleet and for working capital. Some of the future growth strategies include:
  • Broadening fleet diversification 
  • Expand into deep water offshore accommodation
  • Expand into new geographical markets that has significant growth potential

Post the IPO, the number of shares will be 1,820,000,000. The Company continued to be tightly controlled where substantial shareholders Kuok Family will hold about 75.8% of the Company. 

Pacific Radiance

My gut feel is that this counter will trade like Pacific Radiance whereby you will need a longer time for it to trade towards its potential provided it can execute its strategies and continue to grow its EPS. My IPO write up for Pacific Radiance is here.

My Valuation

This set of peers is downloaded from Capital IQ based on last Friday's closing price

Since this company is a top 5 global company, it should technically deserve a premium over its peers. However for conservative and given the pricing being priced at the lower end of the book building, i will be more conservative and use the Pacific Radiance and Ezion forward PER of 10x as a benchmark.

If POSH trades towards the forward PER of 9x-10x, the fair value range should be around S$1.16 to S$1.29, representing an upside of between 1% to 12%. My gut feel is that the debut should be around $1.15 to $1.20 given the large IPO float.


Given the large float, muted sentiments and financial statements that i don't really like, i will give it a 1 Chilli rating as i think it is already fairly priced. How it will perform going forward will very much depend on whether the Company can execute its expansion plans and it is too early to pay the current price for that potential. 

Buy if you like but don't expect too much fireworks. Be contented if you get a 6%-8% upside on debut but any weakness in sentiments will probably mean a weak debut. 

Happy IPOing.

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