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