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Saturday, 26 July 2014

Terratech Group

Terratech Group ("Terratech" or the "Company") is placing out 108.7m shares at $0.23 each. 43.5m will be new shares and the rest will be vendor shares. The market cap based on the IPO price will be S$141m.

The IPO will close on 25 July at 12pm and starts trading on 30 July. There is no public tranche.

Principle activities

The Company is a resources company and produces marble blocks and marble slabs in Malaysia. They have 4 main sites in Kelantan with a term of 33 years.

The products of the Company include marble blocks, marble slabs, aggregates and calcium carbonate powder.

According to an independent valuer, the marble quarry is worth between $170m to $420m with a preferred value of $260m.

What I like about the Company 

• High proven reserves are easy to extract. One of the key issues of any mining company is the cost of extracting the resources from underground and then transporting them to a port. In this case, the quarry are located on hills, and are easy to mine. No expensive machinery is needed. 
• Top quality marbles enjoying a good premium, especially in China. 
• Clear identifiable growth strategies and production plans. 

My concerns 

• The pre-ipo investors are selling out to new investors. 
• Low production yield of 26%. 
• The company has been making losses for the last 3 years with zero revenue. 
• It is difficult to value this company as the license is for only 33 years. Can they fully max out the value of the quarry during this period?
• This company will be forgotten over time and the gold mining company CNMC from Malaysia listed here and didn't perform well thereafter.

Valuation and Ratings 

I will not attempt to do a valuation on this company. This company is a tad too early stage for me and had many milestones to achieve to reach profitability. The Company in its prospectus, mentioned that most of its order books will be recognized in FY2015. Assuming that is true, the revenue of the company will likely be around $17m. At this juncture, given that it has just started production, it is too early to know what the net margin is.

I understand from sources that demand is very hot but having said that, I can't see what so sexy about it. I will give it two chilli for the IPO debut but one chilli rating for the longer term. Don't be the last to hold the baby unless the Company can prove it's execution capabilities over time.

Happy marbling. 


winston koh said...

today closed 0.235,IPO price is 0.23

is it common for a stock to trade way below its IPO price within the 1st week of trading?

Mr. IPO said...

Anything is possible la

Edie Jams said...

nice work on this topic uve done great job i like ur article

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