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Saturday, 22 April 2017

Aoxin Q&M Dental Group Limited

Aoxin Q&M Dental Group Limited ("Aoxin" or the "Company") is placing out 57m Placement Shares at $0.20 each for a listing on Catalist. There is no public tranche. The IPO closes on 24 April 2017 at 12pm and will start trading on 26 April. The market cap post the Honour Subscription shares 372m is $74.4m.

Principal Business

The Company is one of the leading providers of private dental services and dental equipment and supplies in the Liaoning Province, Northern PRC.  The Company has 240 dental professionals (comprising 113 dentists and 127 dental surgery assistants) in 11 dental centres (4 dental hospitals and 7 polyclinics) in 4 different cities, namely Shenyang, Huludao, Panjin and Gaizhou.

There are two core business - provision of private dental services and distribution of dental equipment and supplies.

Financial Highlights

While it is good to see the revenue and profit growing strongly from FY2013 to FY2015, it started from a very low base. In addition, the revenue stagnated and profitability from continuing operations declined in the last 2 years 

According to the prospectus (page 80), assuming the service agreement is in place, the EPS will be 0.53 Singapore cents based on the pre-placement shares of 298m. This will drop to around 0.43 Singapore cents using the post placement shares of 372m after the Honour Subscription is completed. This translate into a whopping PER of 47x!

Using the 9M2016 pro forma financials presented above, it seemed like FY2016 is a tough year. I am not privy to the FY2016 results, hence assuming i pro-rate the FY2016 revenue and profit equally, revenue will come in at RMB 81,989m and profit will come in at RMB 6.512m, meaning that net profits has declined by 19% compared to FY2015.

Under this circumstances, the PER is going to escalate even higher to 55x, making this one of the most expensive IPO. The only "saving grace" is that the NAV per share of around ~$0.12 versus the IPO price of $0.20 is not as bad as i expected. At least it should help support the trading price should it fall to those levels.

Use of Proceeds

The IPO proceeds will be used to expand the business though acquisitions and for working capital.

What i like about the Company
  • On the macro side, rising middle income group in China will demand better quality dental care and this will help the Company
  • Get direct exposure to the dental healthcare sector in China. It may have small operations in Liaoning now but it is a good starting point 
  • Having a listed Company Q&M as major shareholder (44% stake), investors can be more comfortable about the corporate governance. The CFO of Q&M dental also sits on the board of Aoxin
  • Good to see Q&M 'rewarding its staff' by gifting the shares to its 628 employees via the "Honour" scheme

Some of my concerns
  • The pro forma financials includes "discontinued operations". I personally don't like such financial statements as it may not be so easy for a company to "discontinue" operations going forward. The Company is trying to "sell you the idea" that going forward, the discountinued operations will not longer affect the business.
  • The valuation is way too high, paying >50x PE for this business. While the sector is trading at such high multiples, in my view, there are better alternatives to invest in
  • Complicated arrangements and non compete agreements with Q&M (parent). Example among others, Aoxin is not able to compete in Southern PRC, including but not limited to Shanghai (page 128)

My chilli ratings

My ratings is probably not important since there is no public tranche. The current buoyant IPO market year to date (see table below) and the low absolute 20c pricing will provide near term support (assuming the placement was done well).

While i like the dental healthcare sector, i am really skeptical of the high valuation which this IPO was launched. Based on the forward PER, it is being listed at more than 50x PE! 

Enjoy the hay while the sun is out (hope they place to strong hands!) but it is a zero chilli rating for me valuation wise.

Happy Aoxing

Thursday, 6 April 2017

UnUsUaL Limited

Unusual Limited ("Unusual" or the "Company") offered 96.99m shares at $0.20 each via placement. There is no public tranche hence rendering my chilli ratings less meaningful. At the IPO price, the market cap is around S$128.6 million. 

The Company specialises in the production and promotion of large scale live events and concerts by renowned international artistes such as the recent Jacky Cheung world tour concert in Singapore.

Financial Statements

The Company generated less revenue for 9M2016 but was able to maintain its profitability by improving the net margins from 16% to 24%. In this regard, for the 9M 2016 period, it actually showed a 39.5% improvement period on period to 0.60 Singapore cents on a fully diluted basis. The Company is likely to perform better for FY2016 since it has yet to factor in the last 3 months performances.

Assuming it ended the year at $4.5m (i am guessing), the EPS is around 0.70 Singapore cents. That translate into PER of around 28.6x


Public investors will hold about 15% of the Company with mm2, a listed company, holding 41.9% of Unusual. The original founders, Leslie and Jonny Ong will hold about 40.3% of Unusual. In addition, SPH AsiaOne (one of the pre-ipo investors) may also subscribe up to 25.636m Placement Shares. In other words, the placement is tightly controlled. 

Use of Proceeds

The proceeds will be mainly used for promotion and production projects and expanding the group's business.

What i like about the Company
  • Strong hands. Looking at how mm2 rose from a small cap Company to a company currently valued at >$500m market cap and trading at 43x PE, you will probably wonder if the investors backing mm2 Asia are pretty "unusual" as well. With the same backers behind Unusual Limited as well, i can probably guess that the Company is pretty "well supported". The shares will be tightly controlled post IPO, somewhat similar to mm2 Asia.
  • The price paid by the pre IPO investors of 17 cents are not too far from the IPO price.
  • Looking at the milestone and concerts hosted, the Company probably "cornered" the concert market in Singapore, which is probably right. lol. They even claimed in the Competition section that "there are no major competitors which match our Group's profile in the industry".
  • There is probably much synergy with mm2 Asia, leveraging off each other's network and a demand for "one stop solution" for artistes to perform in the  ASEAN region
  • Lack of competitors in Singapore
Some of my concerns
  • This is definitely not a "value buy" to me. The Company is being listed at >30x historical PER
  • Key man risk. This is a "people" business in Asia. You will need the founders and management to run the business with integrity as artistes tend to be quite "sticky". While it is good for the Company if the artistes are "sticky", it also mean that the key man risk is pretty real. In other words, the huge premium of 15.91 cents you pay over the NAV of 4.09 cents is to make sure the founders and management stay together. In the event that they quarrel and split, this premium will evaporate as well. Having said that, the brothers have been working together for a long time, the question then is whether they can work well with majority owner Melvin Ang from mm2 Asia
  • The cash in the Company was dividend out to the founders and ironically, there is no clear dividend policy announced
  • The staging of concerts depended greatly on the popularity of the artistes as well as the general state of economy. While Singaporeans are probably suckers (including myself) to pay high prices for concerts, there is a limit to how much more they can charge for the tickets
  • While it is a stable business, I am not sure how scalable it is in this region as demonstrated by the space in which it is operating. 
Chilli ratings

My chilli rating is not meaningful since there is no public tranche. If i have to hazard a guess, it will debut well given the strong hands and "tight supply" and there are  not many shares available for the public. However, valuation-wise, i will give it a one chilli rating for reasons mentioned above. 

Happy IPO Singing! 

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