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Saturday, 31 October 2015

Jumbo Group Limited

Jumbo Group Limited ("Jumbo" or the "Company") is offering 88.23m new shares at 25 cents each where there is only a meagre 2m shares available to the public! The rest of 86.23m shares will be distributed through placement. The IPO will close on 5 Nov 2015 at 12pm and starts trading on 9 Nov.

Separate from the offering, it has signed up Cornerstone Investors to subscribe for 72.1m cornerstone shares who will together, own 11.2% of the enlarged company. The market cap post IPO will be around ~S$160.3m.

Writing this IPO post just before dinner was not a wise decision as i became quite hungry thereafter, especially just coming back from an overseas trip without local food.


I don't think Jumbo needs much introduction as it is a well-known name locally. It was first established in 1987 and currently operates 14 F&B outlets in Singapore with 2 in Shanghai, China and a 3rd one opening in Jan 2016.

While Chili Crab is probably its most famous seafood dishes, it now owns a portfolio of restaurants such as JPOT, Ng Ah Sio Bah Kut Teh and Chui Huay Lim Teochew Cuisine.

Financial Highlights

Revenue has been increasing over the last 3 years with profit rising to $13.7m in FY2014. The revenue continue to grow healthily to $62m in 1H 2015 but profit grew to $6.871m (pro-forma). 

Assuming the service agreement has been in place and based on the enlarged share capital, the Company is listing at a PER of around 12.4x using the pro forma EPS for FY2014.

Assuming net profit either doubled from first half or increased by 9% (using the first half growth rate) from FY2014, the full year profit will likely be between $13.7m to $14.98m. This translates into a forward EPS range of between Singapore 2.13 to 2.33 cents and a forward PER of between 10.7x to 11.7x

Business Strategies and Future Plans

The Company intends to use the net proceeds raised to:
  • Open at least 4 outlets in PRC and Singapore within the next 24 months
  • Have more central kitchens
  • Expand business through M&A, JV and strategic alliances

This is the shareholders list post IPO. The family continues to own 57.9% of Jumbo. There are two significant shareholders that emerge. One was Heliconia Capital and the other was Ron Sim (Osim's founder). They were also the cornerstone investors. Heliconia is wholly owned by Temasek and provides growth capital to Singapore SMEs while Ron Sim is one of the richest man in Singapore.

Dividend Policy

Jumbo intends to pay no less than 30% of its net profit attributable to Shareholders in FY2016 and FY2017. Based on projected EPS of around say, 2.13 cents, the dividend yield is around, 2.5%.

What I like about the Company
  • Well known and established brand in Singapore
  • JBO has undertaken 24 months moratorium (from the usual 12 months) and Cornerstone investors for 6 months
  • Profitable, highly cash generative and dividend-paying business
  • Reputable cornerstone investors in Heliconia and Ron Sim 
  • Expanding in China seemed to provide a new engine of growth 
Some of my concerns
  • Growth for Jumbo in Singapore likely to be limited. Personally, i had not ate at Jumbo restaurants for the last 12 months
  • Family members continue to play key roles in the Company
  • Payment of $51.7m conditional interim dividend. While it is meant for "restructuring", the prospectus wasn't very clear whether it is used to acquire the businesses or to pay out cash to the existing shareholders.
  • Personally I don't like this business where rental and labor costs are rising rapidly coupled with slowing economic and tourism growth in Singapore
  • Economic slowdown in China when consumption at restaurants are on the decline
Peer Valuations

The listed peers are trading at very rich and ridiculous valuation. Some of them are not very profitable.

Assuming a 15x PER, the fair value range is between 32 to 35 cents, representing >20% upside from its IPO price.

My Ratings

Personally I don't like this sector but i understand from people in the know that Jumbo's IPO is very chilli crab hot and that the Cornerstone Investors had their allocation cut as well. My allocation wasn't spared as well and I was cut by 20% :-P

Heliconia and Ron are probably long term investors and that had somewhat help "validate" the long term growth plans. As such, i believe there will be a nice pop on the first day.

I will give it a 3 Chilli ratings for this IPO but 2 Chilli over the longer term and I won't overstay my welcome.

Sunday, 18 October 2015

Perennial Real Estate Holdings Limited - 4.65% 3 years

Perennial Real Estate Holdings Limited ("PREH" or "Issuer") is offering up to S$150m of 3-year bonds with an interest rate of 4.65%. The OIS and product highlight sheet can be found here. You should read at least the product highlight sheet ("PHS").

The key terms are as follows:

Amount:  Up to S$150m

Interest rate: 4.65% fixed

Interest Payment date:  Twice a year on 23 April and 23 October

Maturity date:  23 October 2018

Manager:  DBS Bank

Ratings:  Not rated

CPF application: Not allowed

SRS application: Not allowed for initial application but may purchase post listing

Minimum application: S$2,000 for public tranche and $100,000 for placement tranche.

Timeline of Key Events

Background Information on the issuer

I will not repeat what you can find in the PHS or OIS. In a nutshell, PREH is a property developer and investor with mature and developing properties in Singapore and mainly China. It has a "blue chip" name of local tycoons supporting PREH, such as founders of Wilmar and OSIM.

Nature of bonds - what exactly are you looking for?

When we invest in bonds, we are trying to solve for the answers to the following questions:
  1. Do I like the coupon rate?
  2. Can i afford to hold the bond till maturity?
  3. Can the Company pay me the regular interest coupon twice each year?
  4. Can the Company pay me back my principal at maturity?
If all your answers to the above questions are "yes", then the bond is suitable for you.

How is PREH expected to be performing over the next few years?

PREH is expected to do well for the next 3 years, experiencing high growth every year. CIMB has a Add rating to PREH. The research reports are attached here and here.

You can see above that while equity investors is expected have a nice share price upside but their expected dividend yield is less than 1%! 

Debt level

The Company is highly geared. I am not going to pretend that it is not. Having said that, i believe the current debt is manageable. You can see from the long term solvency ratios below that the Company is very highly geared.

Mr IPO's views

I am currently trying to construct a bond portfolio to generate passive income. I will share that in my SRS blog shortly

What i like about PREH bonds is as follows:
  • Strong management with good track record
  • PREH is forecasted to do well for the next 3 years (see research report)
  • Assets with SGD inflow will help hedge the bonds naturally. RMB is also expected to be stable against the SGD
  • 3 years fixed rate of 4.65% sounds about right. I can redeploy the cash after maturity if interest rate goes up by then
My key concerns will be the over-geared balance sheet but i am optimistic that 50% LTV is adequate to protect my unsecured bonds.

If you don't have the holding power, then this bond is not for you. 

Happy Bonding. Mr. IPO is vested through the placement tranche.

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