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Tuesday, 26 April 2016

Perennial Real Estate Holdings Limited - 4.55% 4 years

Perennial Real Estate Holdings Limited ("Perennial") is offering up to S$200m bonds at 4.55% due 2020 with $75m from placement and the balance from public offering. If the demand is overwhelming, the Issuer may issue an additional S$100m bonds. The closing date is 12pm on 27 April 2016. The main purpose of the bonds issuance is to repay debt.

The previous retail bond was sold in October last year with a 3 year tenure and an interest rate of 4.65% and the write up is here. I have recently received my first payout from that bond. Usually a longer dated bond will have a higher interest rate than a shorter tenured bond but it is clearly not evident here. What this effectively means was that the previous "3 year bond" gave better value than the current 4 year bond. 

The key terms are as follows:

Amount:  Up to S$200m with option for another S$100m.

Interest rate: 4.55% fixed

Interest Payment date:  Twice a year on 29 April and 29 October

Maturity date:  29 April 2020

Manager:  DBS Bank and UOB

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.

Key Financial Information

The key information is provided below and it looks fine (18M period). The net assets of $3.88b is more than adequate to support the debt being issued.

Structure Chart


Comparable bonds

The previous retail bonds issued is holding up well above par. Including the AI tranche, the bonds are currently trading at yields to maturity of between 3.55% to 3.97%, which probably explains why the current bonds issuance can be competitively priced at 4.55%. It is definitely more "worth it" to subscribe to the new bonds than to "buy" them in the secondary market.

Research Report

CIMB issued a research report in Feb 2016 with an Add rating. The link is here for your ease of reference.

News flow

There had been some negative news flow in recent months where it is widely reported that Perennial and Pontiac is in a deadlock over Capitol. 


Basically i am not going to do much work here, my view is that the credit of Perennial is fine and will repay the debt when it falls due. 

Whether you buy or not will depend on your exposure to Perennial. Since i am already vested in the 4.65% tranche previously and my personal preference for a shorter dated tenure, i will give the current bond a miss. However, if you have not participated previously, you may want to consider adding a small exposure to your portfolio if you believe the "Pontiac Land" will not be an issue.

Happy bonding and i hope to see "non property related" retail bonds soon!

Saturday, 16 April 2016

Acromec Limited - Balloting Results

Acromec Limited announced that its IPO received strong interest from investors where its shares is about 5.3x subscribed. Below is the excerpt from its Managing Director on the strong response.

Mr. Lim Say Chin, Executive Chairman and Managing Director of Acromec, said: "We are deeply encouraged by the strong investor support we have received for our IPO. This is a clear demonstration of the confidence that the investment community has in Acromec's proven track record and promising prospects in serving the growing healthcare, biomedical, and research and academia sectors."

The balloting table is as follows:

Investors who applied for 100,000 to 499,900 shares have the highest allocation to the shares and a 30:99 probability. They will get be allotted 7,000 shares. 

Mr. IPO is unsuccessful for both accounts for the public tranche :(

The placement tranche is pretty well supported with Alan Wang from Asdew Acquisitions allotted 5.7m shares. 

Good luck to those who applied and got it. Let's see if it performs well on Monday.

Saturday, 9 April 2016

Acromec Limited

Acromec Limited ("Acromec" or the "Company") is offering 27m New Shares at $0.22 each. 1.5m shares will be via public offering and 25.5m via placement. The IPO will close on 14 April 2016 at 12pm. The market cap based on the IPO price is around $26.46m

The Company is a Singapore-based specialist engineering services provider with 20 years of experience in the design and construction of facilities requiring controlled environments such as:
  • Cleanrooms
  • Medical and Sterile Facilities
  • Laboratories

It also provide maintenance services to these facilities. The Company serve mainly the healthcare, bio-medical, research and academia, and electronics sectors. 

Financial Highlights

The Company showed "erratic" revenue pattern where revenue was $45m in FY2013, drops to $23m in FY2014 and then increase to $35m in FY2015. Despite the yo-yo type revenue, the Company was able to show increasing profitability. Its profit was $2.58m in FY2013 and increased to $3.38m in FY2015, with net margins hmaintained at between 6% to 12%.  

Based on the EPS of 2.81 cents, the Company is listing at a historical PER of around 7.8x. Had the service agreement been in place, the net profit would drop to $2.8m and that would translate into EPS of 2.328 cents (instead of 2.81 cents). This means the PER is around 9.45x.

The Company has an order book of $40m as at 8 March 2016 and expects more than 90% of the order book to be fulfilled in FY2016. It is unclear if the revenue will improve from prior year but the order book translate into a revenue of at least $36m. 

The Company intends to distribute at least 20% of its net profits attributable to Shareholders for FY2016 and FY2017. Assuming the EPS is 2.81 cents, this will translate into a dividend yield of around 2.6%. 

Past and Existing Projects

Interesting list of clients from the projects.

What I like about the Company
  • A long and established track record by an experienced management team
  • Stable business with strong order books 
  • Maintenance business help Acromec be in close contact with its most likely customers and provide recurring income
  • Servicing customers in key growth sectors such as healthcare, research & academia and electronics
  • Expanding its footprint into the region as part of its growth plans
  • Majority of Company is held by the 3 directors with no pre-ipo investors trying to "cash out" once it is listed
  • Accounts audited by a big 4 - Deloitte
  • A long history of paying out dividends and will continue to do so post listing with a decent projected yield of more than 2.5%
  • Clients comprised blue chip names such as P&G, A*Star and SGH
Some of my concerns
  • High premium paid over its NTA of 8.91 cents
  • Uncertain economic outlook in Singapore and rest of the region
  • Small cap company with tight net margins
  • IPO market has been in the doldrums for 2016! See list below

My Fair Value

My gut feel is that the Company will likely improve on its revenue last year and should hit $36 to $40 m given its order books. Assuming the net margin of 9.6% is maintained, the net profit will be between $3.4 to $3.8 m and EPS will be between 2.9 cents to 3.2 cents. Assuming a PE valuation of 8-10x, the fair value will be between 24 to 32 cents.

Mr IPO's views

I have to say that after reviewing the prospectus, I actually quite like the Company even though it is a small cap company. It has a stable business, quality clientele, pays a regular dividend and audited by a big 4. The IPO is also priced fairly at around 8-10x PE, unlike some of the ridiculous valuation seen in Anchor Resources and Secura. It also reserve a small tranche for retail investors. 

For the reasons given above and in what I like about the Company, i am going to give it a 2 chillis rating and subscribe for the public tranche ^_^ 

I have also asked my contact for placement but haven't heard back yet. Will let you know if the demand is good. 

Happy IPOing

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