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Wednesday, 27 January 2016

Secura Group Limited - Balloting Results

Secura announced that its entire IPO was 2.2x subscribed but the Company decided to allocate shares to all its public IPO applicants. Investors who applied for 50,000 shares will get 3,000 shares and 6,000 warrants. They definitely make it difficult for these shareholders to sell as such numbers is "neither here nor there".

Anyway good luck to those who applied. ^_^ 

Sunday, 24 January 2016

Secura Group Limited

Secura Group Limited ("Secura" or the "Company") is offering 112m shares at $0.25 each of which 108m shares are via placement with 4m shares for the public for a listing on Catalist. The market cap based on the IPO price will be $100m.

For the first time (at least for me), there are 224m free detachable warrants where you will get 2 free warrants for each share allotted. Each warrant allows you to convert into one shares at an exercise price of $0.35 each.

The offer will close on 26 Jan 2016 at 12pm and starts trading on 28 Jan 2016.

Principal Activities

The Company provides an integrated suite of security products, services and solutions.The Company has been providing security printing services since 1976 and owns one of the largest cheque printing businesses in Singapore. 

Services provided include:
  • Security Printing
  • Security Guarding
  • Cyber Security
  • Homeland Security
  • Other consultancy services

Interesting shareholders names

An interesting list of shareholders in Secura. Seems like a mini club deal where the who's and who's in the local corporate world invested in this firm. 

Football fans will know who Peter Lim is. Wee Ee Chao takes care of UOB Kay Hian and we have City Developments as well as Mr. Kuok Khoon Hong (from Wilmar), Tony Tan Choon Keat and Berjaya Group. They invested at an average price of 1.47 cents to 6.70 cents. Public investors are coming in at 25 cents.

Financial Highlights

The Company generated a revenue of $30.4m for FY2014 and a net profit of $8.2m. Stripping out the non-recurring profit of $5m, the recurring net profit is around $3.2m.

While the prospectus go "rah-rah" about the Company being a "cyber security" company, a look at the actual revenue shows that the bulk of the money is still being earned from the bread and butter "security guarding" rather than the "high growth" cyber security which came off a very low base.

Probably positioning it as a cyber security will be more "sexy" and will warrant a higher "valuation" in the market place.

The Company also helped readers to project what FY2015 profit will be like. Using very simple arithmetic, where 1H2015 net margin is around 11.1%, full year revenue will be around $16.1m + $9.2m = $25.3m and net profit will be around $2.81m. Since the order book excludes security printing business, the actual revenue and profit will likely come in higher than this.

A slightly more aggressive way to project will be to use HY2015 growth in revenue and profitability of around 13%. That will translate into a revenue of $30.4m x 1.13 = $34.4m and a profit of $3.58m.

Taking a combination of two, the revenue should be between $25m-34m and net profit should come in between $2.8-3.6m

Based on the post IPO number of shares of 400m, the FY2015 EPS will come in around 0.7 to 0.9 cents. That translate into a PE ratio of between 27x to 36x.... 

The warrants served as a huge distraction to investors by providing potential "free upside" but do not take away the fact the IPO valuation is indeed very rich. The IPO is also sold at a huge premium to its NAV of 9.4 cents per share.

Used of proceeds

The Company is raising a huge amount of money of $28m. The use of proceeds as follows:

Assuming all warrants are exercised, the Company will receive another $78.4m in proceeds! 

What I like about the Company
  • Very stable business in cheque printing. Many banks need to pre-qualify the vendors and once qualified, there is some stickiness with staying with the same vendor
  • The volatile and uncertainty (such as potential terrorist attacks) has led to the increase of physical security guard. Having said that, my recollection is that in Singapore, only Certis Cisco can provide armed guards. Other firms such as Secura can only provide unarmed security guards
  • Reputable and savy shareholders list but that doesn't mean they are going to give retail investors a free lunch. In fact, retail investors are probably the lunch. :-P
  • Innovative structure with detachable warrants that expire in 3 years and exercisable at 35c. It seemed to tell investors that they should "hold" for at least 3 years
  • Allowing investors to participate in this offering even though it is a small tranche
  • Cyber Security is an interesting space and i believe the Company wants to use the high valuation for M&A opportunities
  • Audited by a big 4 Ernst and Young. 

Some of my concerns
  • While cheque printing is a stable business, it is also a sunset business. People still writing cheques will belong to "the older generation". Technology has since changed the way people pay for services. One good example will be i used to write cheque to pay my credit card bills but have since moved on to online platform such as Internet banking or
  • Uncertain and volatile markets sentiments may affect the debut
  • Very rich valuation. There are many beaten down stocks that are currently worth a second look vis-a-vis this Company debuting at high valuation
  • While the detachable warrants is novel, it creates another layer of complication to retail investors, who may not fully appreciate how warrants work
  • Misleading prospectus where they list the PER of FY2014 at 8.9x, knowing jolly well that $5m of the net profit in FY2014 was non-recurring and using a pre invitation share capital as the denominator! 
  • The Company took out the cash prior to the IPO through dividends amounting to around $12.8m over the last 3 years. If the prospects is so good, why didn't they keep the cash in the Company to grow the business?
  • Huge placement tranche of more than 100m shares may mean selling pressure 
My Ratings

The reputable list of investors should provide some initial interest and support but the valuation, in my view, is really too rich and there isn't enough growth prospect to warrant such a high valuation.  My guess is that the Company will take advantage of the high valuation as currency for future acquisitions since all the "towkays" inside are deal makers but don't make yourselves their lunches. They got in a much lower valuation. 

It's a very mixed feeling for me. My gut feel is that the share will debut above its IPO Price but don't overstay your welcome. It's a one chilli rating for me as this is not a clear compelling buy and the towkays definitely didn't leave any meat on the table. 

Tuesday, 12 January 2016

GS Holdings Limited

GS Holdings Limited ("GSH" or the "Company") is offering 24m Placement Shares at $0.25 each for a listing on Catalist. The IPO will close on 14 Jan at 12pm with a market cap of around $31m. There is no public tranche.

The Company provides centralised cleaning for the F&B Industry. This picture below shows how the operations of the Company looks like.

It is probably quite unique in Singapore due to high manpower costs and our government is trying to reduce reliance on foreign labour on these jobs by automating the cleaning process.

The Company seemed to have covered Singapore quite extensively with this map above as it is one of the first mover in this space with ~40% market share.

Financial Highlights

According to the prospectus, the Company has secured $18.2m worth of order book as of 15 Dec 2015 with $14.2m expected to be recognised in 2016.

The NAV per share post IPO is around 5.3 cents versus the IPO price of 25 cents. The order "revenue to be recognised" of around $14m seemed to be a marked improvement from its 1H 2015 results. The Company will like gain economies of scale if they are able to secure more orders.

What i like about the Company
  • Secured order book of $18m assuming customers recontract at current rates
  • First mover with ~40% market share in Singapore
  • Increasing focus by government to enhance productivity in this area
  • Diversified customer base
Some of my Concerns
  • Singapore centric with limited market potential
  • Company is loss making from day 1 and have yet to turn around fully.
My Ratings

Since there is no public tranche, I am not going to spend too much time on this. Not terribly excited by  the industry prospects as well and will give it a zero rating due to from coaching perpective.

Happy IPOing.

Monday, 11 January 2016

Eindec Corporation Limited

Eindec Corporation Limited ("Eindec" or the "Company") is offering 35.8m Placement Shares at $0.21 each for a listing on Catalist. The offer will end on 13 Jan 2016 at 12pm and there is no public tranche and i will not spend too much time researching into this Company. The market cap is S$22.6m based on the IPO price.

The Company is a regional clean air environmental and technological solutions group with diversified product lines across different market segments. The Company has an operating history since 1984 with 2 manufacturing facilities in Singapore and Malaysia.

Diversified Product Ranges

The diversified product range is listed below

Financial Highlights

While the prospectus looks promising, the financial statements somewhat painted a different picture. The sales stagnated over the last 3 years with declining profitability. Even the 1H results continued to show declining net profit. Without considering other factors and based purely on the financial results alone, i would have given this Company a miss.

Based on the IPO price of 21 cents, the Company is listing at a historical PER of around 21 divide by 1.27 = 16x. This is pretty expensive and over-valued in the light of declining EPS in 1H 2015. In 2014, the 1H results is actually better than 2H, so even where i gave it the benefit of doubling 1H 2015 EPS, the valuation is very high at 21 divided by 0.66 = 32x.

Future Business Plans

The Company started to market its own brand of purifiers in China. Given the poor air quality in China, it is a strategy that might have some potential but it is too early to tell. 

What i like about the Company
  • Audited by KPMG, a big 4 auditor
  • Not withstanding the slowing Chinese economy, there could be some potential for China upside given the new parentage. 
Some of my concerns
  • Stagnant revenue and declining profitability
  • Small cap company
  • Ghost of the past in the poorly managed Kyodo Allied. How did it even get re-listed again!!

My Ratings

If there is a public tranche, i would have given it a zero chilli ratings. Given the bloodshed in the markets since Jan 2016, you can get bigger and better managed companies at half the valuation. Use your time to look for something better in the market instead. ^_^

Happy IPOing

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