Wong Fong Industries Limited

Wong Fong Industries Limited ("Wong Fong" or the "Company") is placing out 43m shares at $0.23 each for a listing on Catalist. There is no public offering and the offer will close on 26 July at 12pm. The market cap at IPO will be $54.1m

The Company is a provider of land transport engineering solutions and systems for various industries with a presence in Singapore, Malaysia and the PRC. The core businesses are:

• sale and installation of equipment
• design, customisation, engineering and integration of equipment and solutions
• servicing and maintenance support
• conducting training courses for industrial equipment users

Financial Highlights

As you can see from the table above, revenue from equipment sale made up more than 75% of the revenue each year with more than 90% of them derived from Singapore. As such, i will consider Wong Fong more of a Singapore-based business.

Revenue and profitability has been stable (or "stagnant"?) for the last few years. Revenue was around the $77m area and profitability at $5.3m. The net margin is about 7.2%. For FY2015, the EPS based on the post placement shares is around Singapore 2.4 cents. 

Based on the IPO price of 23 cents, the historical PER is around 9.58x. 

The NAV per share is about 18.8 cents (versus the IPO price of 23c).

Assuming the EPS remained the same at 2.4, the dividend per share is around 20% x 2.4 = 0.48 cents. This translate into a yield of around 2%.

Use of proceeds

Shareholders

The Lew family owns about 68.6% of the Company and the public holds 18.3%, with the balance held by Lee Chong Seng.

What I like about the Company

• Long proven track record tracing back to 1964
• It has been paying dividend and it intends to pay dividend of not less than 20% of net profits in FY2016 and FY2017
• Stable business with a healthy order book
• Strong cash flow from operating activities over last 3 years with $10.9m from FY2015

Some of my concerns

• Small cap company
• Competitive industry that is heavily dependent on foreign workers for operations in Singapore
• Tightly held family run business  with related personnel in various departments
• Lack of growth and scalability as revenue are mainly derived in Singapore

Fair Value

I struggled to think of a direct listed competitor in Singapore that is transport related. Given the stagnant revenue and profitability over the last 3 years, i will assume that it achieves the same level as prior year in FY2016.  Assuming a PE range of 8-10x, the fair value range is between 19 to 24 cents with the downside supported by its NAV of 18.8 cents.

Chilli Ratings

Since there is no public tranche, the rating is less relevant but I will give it a one chilli rating to show "support" for our local SME. ^_^

The IPO is fairly priced at the higher end of the fair value range at 23 cents and the growth prospectus is stable but not terribly exciting. I understand the shares were placed to friends and family of the Company.