Versalink Holdings Limited

Versalink Holdings Limited ("Versalink" or the "Company") is offering 37m shares at $0.30 each for a listing on Catalist of which 35.5m is via placement and 1.5m shares is for the public. 25m will be new shares and the balance vendor shares. The IPO will close on Sep 22 at 12pm. The market cap based on the IPO price is S$40.5m

The Company is an established Malaysia-based manufacturer of mid to high-end system furniture with over 90 overseas dealers in more than 40 countries globally.

Products

The picture below shows you the types of furniture produced by the Company for its customers.

Financial Highlights

I quite like the financials of the Company, which is showing a very nice growth momentum. Revenue grew from MYR 49m to 79m from FY2012 to FY2014 and Net Profit after tax MYR 4.4m to MYR 14.5m during the same period.

Based on the post IPO enlarged share capital of 135m shares, the adjusted EPS will be MYR 10.77 sen or (Singapore 4.24 cents). This translate into a PER of around 7x.

The NAV per share is about 17.1 cents versus the IPO price of 30c.

Dividends

The Company intends to pay not less than 30% of its net profit after tax attributable to shareholders for FY2015 and FY2016. Assuming the EPS remained the same, the Dividend Per Share = 30% x 4.24 = 1.272 Singapore cents. This translate into a yield of 4.24%, which is pretty decent.

Having said that, the sales is highly unpredictable and the Company said that it will record an interim loss for HY2015. This just shows you how difficult it can be to project sales and profitability on this Company. In this regard, my view is that the earnings may drop this year and the yield is probably lower than 4.24%. (Note that i have no visibility to the earnings forecast).

What I like about the Company

• ranked by an independent research company as one of the most profitable companies among its comparables in Malaysia
• Established track record and management team
• Low cost base in Malaysia with a growing economy
• Strong design and relationships with customers
• Dividend paying company and lowly geared

Some of my concerns

• Warehouse, Showroom and Hostel did not obtain the proper approval from the authorities prior to construction or for the usage (what is this.....?!!?)
• The sales are denominated mainly in USD and MYR. A weakening of this two currencies will impact the reported financials in SGD
• I don't really like the industry in which the Company is in. The barriers to entry is not very high and highly dependent on the economy. Whenever there is economy downturn, companies will not spend so much on "high-end" office furnitures.
• Project basis revenue means that the revenue can be unpredictable and of non-recurring nature
• Highly dependent on two key persons, Matthew Law and Arica Walters.
• The vendors are selling out in spite of the low IPO valuation and this is a family owned business

Valuation

I can't think of a similar company listed in Singapore in the same type of business. Some of the listed competitors in the region will include Rockworth Public Company in Thailand and Euro Holding Berhad in Malaysia and Lion Metal Works in Indonesia.

While the peers are trading at ridiculous valuation, that is probably because they are not really profitable and some are loss making. It just show you how tough this sector can be.

The Company is reasonably priced based on the historical PER but i am frankly not too sure on a forward basis, what the PER is. My guess is that it will be much higher at 7x.

Mr IPO ratings

I think some of you will be disappointed with my ratings. Despite the reasonable valuation and uptrending sales and profitability of Versalink, I am personally not too convinced on the industry dynamics for the longer term. The Company is also going to report a loss making 1H2015. 

In this regard, i will give it a one chilli rating. Buy only if you like it. If you are asking whether you can "punt" the stock, given the small float, it is probably possible if the share placement is done properly. However, i understand from grapevine that the Company is placing out the shares by themselves. 

I will not be applying but if you really must punt, be nimble as liquidity will dry up over time unless the Company managed to prove itself to the investors that its earnings are sustainable. 

(Photo Credit: Ms Sarah Seet)