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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. 

Sunday, 2 November 2014

Zico Holdings Inc.

Zico Holdings Inc is placing out 48m shares at $0.30 each for a listing on Catalist. Once again there is no public tranche....SGX are you doing something about this? The IPO will close on 7 Nov at 12pm and will be listed on 11 Nov at 9am.

The market cap is $80.1m based on the IPO price.

Principal business

In case you don't know, Zico is the short form for Zaid Ibrahim. The website is here. It is a very well known law firm in Malaysia with more than 25 years of history.I am surprised that it chose to list in Singapore instead of Malaysia.

It has cleverly restructured itself such that it is listing mainly the Trust and Corporate services, while the offering of legal services will be to the extent it is permitted to do so directly. Otherwise, it will offered by the ZICOlaw Network. The ZICO law network is not part of the listing.

Financial Highlights

The revenue has been growing rapidly for the last 3 years but it is still a lowly RM19m for FY2013. Given this is advisory business, the net margin is high and the profit for FY2013 was RM11.6m

According to the prospectus, Zico is listing at a historical PER of around 23x and will have a market cap of $80m.


I am lazy and will cut and paste both the prospects and future plans from the prospectus.

Future Plans

What i like about the Company
  • ZICO is a "heritage" firm from Malaysia. 
  • The Company has been paying dividends for the last 3 years.
Some of my key concerns

  • The Company paid its owners a huge dividend prior to its listing. See picture above.
  • Transfer pricing between ZICO Law Network and ZICO Holdings Inc. There is actually a lot of room to "maneuver" in this related parties transactions as they are all "professional services"
  • High valuation of 23x PER for FY2013
  • You have to continue to rely on the few "key" lawyers to be the rainmakers.
  • Malaysia continues to be the key market for the company.
  • It is very difficult to forecast the earning as the revenues are services rendered and may or may not be recurring in nature. The breakdown of the revenue is below.

Peer Valuation

One of the only closest peer will be Boardroom Limited. Boardroom has a bigger market cap around $100m and a better PE valuation of around 13.6x. Boardroom has a yield of around 5.4%. Boardroom has very low liquidity.

Mr IPO ratings

I will give it a one chilli rating. Buy only if you like this as liquidity will drve up over time. While the valuation is very high, i understand from sources that the placement was very well received by the friends of ZICO and the books were covered very quickly.

Happy IPOing. Hope there will be something for the public investors soon?

Saturday, 1 November 2014

MS Holdings Limited

MS Holdings Limited ("MSH" or the "Company") is offering 27m shares (comprising 20m new shares and 7m vendor shares) at $0.25 each for a listing on Catalist. The listing will end on 5 Nov 2014 and will start trading on 7 Nov 2014 at 9am. There is no public tranche.

The Company is a crane rental company based in Singapore and rent out its cranes on a daily or short term basis. The Company has a fleet of 25 mobile cranes and 5 lorry cranes.


This is a pretty straight forward business so i am not going to provide much analysis. The key concern i have will be whether there is an oversupply situation in Singapore and whether the construction boom is going to end soon. Below is a pictorial view of what the Company has to say regarding their prospects.

Selected Financial Information


Based on the enlarged share capital and unaudited pro-forma FY2014 EPS of Singapore 3.5 cents, the Company is listing at a Price Earnings Ratio of 7.1x

The post IPO NAV is around 24.4 cents, which is close to the IPO price of 25 cents.

The market cap is around $25.5m.

Peers valuation

Tat Hong is a giant with a market cap of $500m compared to MS Holdings' market cap of $25m. The key ratios for Tat Hong is enclosed below for your information. While Tat Hong has a higher PE ratio, it is actually trading at 0.8x book value, which is "better value" than MS Holdings.

Another peer that is smaller than Tat Hong will be Sin Heng Heavy Machinery. Sin Heng is trading at around 10x PE and 0.8x Price to Book.

Assuming a 8-9x PE for MS Holdings, the implied fair value range will be between 28c to 32c.
Assuming a 0.8x to 0.9x PB for MS Holdings, the implied fair value range will drop to between 20c to 22c

What i like about the Company
  • Stable business with good margins
  • Fair valuation
My Key Concerns
  • Company is highly leveraged. The assets are acquired using finance leases and bank borrowings
  • The business is not really scalable unless they move out of Singapore
  • The construction industry is cyclical and the boom is probably tapering off in Singapore
  • Low barrier to entry
  • Yap Family business. 

Since there is no public tranche, the chilli ratings don't really matter any more. For the records's sake, I will give it a zero chilli rating....zzz....zzz...investors who like to have exposure to this particular segment of the construction industry may consider Tat Hong who may be able to survive a downturn better than MS Holding.

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