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Thursday, 26 November 2015

Axcelasia Inc

This is for record purposes only. Sorry for the late report as there is no public tranche and i am not vested

Axcelasia Inc ("Axcel" or the "Company") is offering 47.52m placement shares at $0.25 each where 35.52m will be new shares and the balance vendor shares. The IPO closed on 25 Nov 2015 and will start trading on 27 Nov 2015. The market cap is around $40m based on IPO price.

Principal Business

The Company and its subsidiaries provide integrated professional services to government-linked entities and corporations in tax advisory, business consultancy, enterprise management system and business support.

Key Strengths

According to the prospectus, the Company has the following key strengths:
  • Good track record
  • Integrated service provider
  • Flat management structure
  • Experienced and dedicated management team
Future Plans

The Company intends to expand in Malaysia and ASEAN region, enhances its range of professional services and support infrastructure.

Financial Highlights

This is a "human business" where revenue hits RM 8.3m in FY2014 with a profit before tax of RM 1.59m. The revenue and income spiked up to RM16.6m and RM6.05m for the 6 months ending HY2015

Based on the exchange rate of 0.33, the adjusted EPS for HY2015 is around 3.77 x 2 x 0.33 = Singapore 2.49 cents. That translate into a listing PER of around 10x but frankly i am not privy to 2H results and will be cautious on such projections.

What I like about the Company
  • Asset light business but having right management is critical as it is an advisory business
  • Shareholders are tightly held by 3 key individuals, which means interest is aligned.
  • Operating cash flow positive company
Some of my concerns
  • Weak RM currency will be a drag on reported earnings in SGD
  • Unpredictable earnings. A big question about my full year forecast as fees may not be stable
  • A small cap company listing at rich historical valuation to its NAV

A similar listed company is Zico Holdings Inc, lised in Nov 2014. It is still above its IPO price but trading at ridiculous valuation.

Mr IPO ratings

I will give it a one chilli rating given its relatively small market cap and "unexciting" business proposal but given the low number of shares and the quality of institutional investors, the Company may see its share price well controlled!

Placement results

The list of placement investors seemed quite well received! Good luck to those who bought the shares.

Sunday, 22 November 2015

The Trendlines Group Ltd

The Trendlines Group Ltd ("Trendlines" or the Company") is placing out 75.76m Placement Shares at 33 cents each for the IPO. It will be a pure placement tranche with no public shares and the market cap is around $168m. The IPO will close on 24 Nov and be listed on 26 Nov 2015.  

What does Trendlines do?

Trendlines is basically an incubator based in Israel. It creates and develops medical and agricultural technological companies with a view towards a successful exit in the market place. The exits of these companies can either be a sale or IPO of these companies. The youtube video is here if you are interested.

Investment Process

This is how the investment process of the Company looks like. Trendlines will invest up to $5m in a company with an expected exit horizon of 6 years or less.

I am not sure if you are familiar with the private equity market. There are many different "styles" or strategies, ranging from:

Seed (pre series) à Venture Capital (Series A and B) à Growth (Series B to D) à Pre-IPO à Buyout

The risk and reward profile is somewhat correlated with the different strategies, with seed having the highest risk but usually highest returns (if the investment thesis pans out).

Competitive Strengths

I will just "copy and paste" from the prospectus on its key strengths.

Interesting Cornerstone Investor

The IPO is supported by B.Braun, a private unlisted strategic investor based in Germany, to the tune of $7.1m or 21.515m shares. The website is here.  I am amazed that this Company was founded in 1839, employs 54,000 employees globally and generated sales of €5.43b but remains an unlisted company!

Portfolio Companies

The portfolio companies are in very interesting medical and agricultural technology space. These are currently very hot sectors to be in. Each portfolio company will be an interesting IPO candidate if it can be listed and can provide potential feedstock to our Catalist market here. Perhaps SGX is even more excited about bringing Trendlines to Singapore vis-à-vis other companies.

The list of top 10 portfolio companies are presented below with a nice vintage diversification ranging from 2008 to 2013. Some of these companies will be "ripe" for harvesting further down the road.

Track Record

In a nut shell, the Company is like an "investment holding company". In most cases, it is typically a listing of the "fund manager" except in Trendlines case, it is the fund manager plus the fund itself since it does not manage separate funds. This is a huge distinction which you need to make (which I will explain shortly).  Anyway, the track record is presented below. It is interesting to note that it has sold companies to acquirers such as Baxter International and made ROIs of up to 67x.

What is the difference between a typical fund manager and Trendlines?

It is important to distinguish the different operating model between a fund manager and Trendlines. A typical fund manager manages funds and earns a management fee (2%) and carried interest (20% of cap gains) from the funds. These funds typically have an investment period of 3-5 years and a fund life of 10-12 years. Trendlines operates more like the "fund" and earns returns from the portfolio companies directly either through the dividends it receives or the capital gains when it sells the company, except in this case, the management fees is the "salaries paid" and it doesn't have a "fund life" per se.

Financial Highlights

The financial highlights are presented above. As highlighted above, earnings can be very lumpy due to different timing in realizing exits and potential write offs.

Pre-IPO investors

The pre-IPO investors consist of the usual players such as Alan Wang, Jeremy Lee and Tommy Goh. They bought in at around 21.45 cents but will be locked up for up till 12 months. I understand from the bookrunners that the IPO tranche was very well supported by the existing pre-IPO investors. In fact, almost all of them "doubled down" their stake by asking for more IPO shares and were cut back. It will be interesting to see if they can perform some local magic here…

What I like about the Company

  • Israel is the 'hot bed' for technology companies and the Company is well positioned to incubate these companies
  • I like the sectors in which Trendlines is focused in – healthcare and agricultural technology
  • Strong management team and track record with Trendlines Medical being named "best incubator" twice
  • Exporting its incubator business in Singapore and China. China should be a very exciting market if the Company can export its business model there
  • Good cornerstone investor in B. Braun, a privately held global company with sales of more than €5.43b
  • The IPO price is supported by the NTA of 24.39 cents (Price/NTA of 1.4x) with interesting pre-IPO investors
Some of my concerns

  • The top 2 executives are very well remunerated and this may cause a drain on the cashflows, which are uncertain and depends heavily on the exit windows. The Company has been having negative cashflows since inception!
  • Government funding on portfolio companies may stop in future
  • Unpredictable income and profitability. It is very difficult to project earnings for this company due to its business nature and a lot is derived from fair value changes. You "can't eat" fair value appreciation
  • It's not easy to fair value the investments
  • Israeli government sponsorships may dry up one day or that the company may not win the mandates. This risk is probably low at this juncture
  • Early stage investments carry a very high risk but also comes with high rewards
  • Disperse shareholding structure with the top 2 executives owning less than 10% of the Company
Peers in Singapore

The peer I can think of is Hotung Investment Holdings Limited but the company is not "trading well" here currently with a 0.42x price to book. If Trendlines trade to that level, it will be below water

My Chilli ratings

Luckily there is no public tranche. Frankly I couldn't decide what chilli ratings i should give. On one hand, I like the sectors in which the Company is targeting. The list of pre-IPO investors and the cornerstone investor Braun, also help instill some confidence in the IPO. You may be able to see some first day "magic".

On the other hand, I am wary of the market sentiments as well as the poor peer performance of Hotung. I am also wary of the unpredictable profitability and negative cash flow since inception. Hopefully it will be at the infection point to be cash flow positive.

Based on the above reasons, I will give it a 1 Chili rating. Do note that I am vested...

Saturday, 7 November 2015

Jumbo Group Limited - Balloting Results

Jumbo announced that its shares was 8x subscribed. The 2m public tranche was >300x subscribed so it will be a tough act to get. 

Jumbo is indeed very hot... Looking at the list of institutional investors. No wonder the 2m public offering is only for making sure there is sufficient headcount. The list of institutional investors (besides the Cornerstone we already know) are listed below. 

The investors are mainly reputable "long only" asset managers such as Fidelity, Lion Global and Nikko. These bode well as for Jumbo as they were not deterred even though it is a Catalist board listing!

As for public investors, I am afraid it is really difficult to get. Investors who apply for 50 lots will get a 3:99 chance and be allocated 8,000 shares. Thank your lucky stars if you can get it. 

I am expecting a nice big pop on Monday  .

Happy Jumboing

Sunday, 1 November 2015

Oxley Holdings Limited - 5% 4 Years

Oxley Holdings Limited ("Guarantor") is offering up to $125m of 4 years bonds at 5%. The key terms are as follows:

The key terms are as follows:

Amount:  Up to S$125m but can be upside to $300m if oversubscribed

Interest rate: 5% fixed

Interest Payment date:  Twice a year on 5 May and 5 November

Maturity date:  5 November 2019

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:  The offer will close on 3 Nov 2015 at 12pm.

Oxley Holdings Limited

The Company is listed on Catalist on 29 Oct 2010 and transferred to the main board on 21 Feb 2013. The 'rags to riches' story of Ching Chiat Kwong is an interesting read. He is partly responsible for the "shoebox" craze in Singapore and he followed up with big bets at the Royal Wharf in London in 2013. I would agree that he has really "bet" well in the past but will luck run out of him one day given that his Company is really over-levered?

According to an article in EDGE last week, Oxley has pre-sold more than 2,000 residential units at the Royal Wharf and the first block will attain "TOP" in May 2016 where Oxley can get the remaining 80% from the buyers. Phase I will be completed by end 2017.

The same article mentioned that Oxley has unbilled revenue of $1.7b from oversea projects and these can be recognised when the projects are completed. In Singapore, it has $1.6b unbilled revenue of which more than $500m comes from Oxley Tower - which should be completed by 2017.

You can say that Oxley is a risk taker and one of the first movers in Cambodia and Myanmar. You would have see his advertisements of the Myanmar project at the PEAK, located with Shangri-la. His upcoming portfolio include hotels in Japan, Singapore, Phnom Penh and KL.

Oxley is also considering listing its property business in Malaysia to raise more equity.

 Financial Highlights

The Company seemed to be highly profitable but its cashflow in FY2015 has been financed by debt and only turned cash flow positive from operating activities in 1Q this year. 

The Company is highly leveraged with bank borrowings amounting to S$2.4b as of 1Q 2016.

Mr IPO's views

If i am to take a bet on Oxley, i rather invest in Oxley than the unsecured bond where the risk / reward just doesn't seem to make much sense. I am locked up for 4 years and earned a fixed interest rate of only 5% that somewhat doesn't commensurate with the risk that i am putting on given that the bonds are unsecured and will be ranked alongside all other unsecured debt. 

Personally, I will give it a miss. You can always purchase from the open market when there is better clarity on the success of some of its upcoming projects. The bond price is not going to run away from you in a rising interest rate environment.   

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