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Thursday, 1 June 2017

Sanli Environmental Limited

Sanli Environmental Limited ("Sanli" or the "Company") is offering 52m new shares at $0.225 per share for its IPO, of which 49.5m will be via placement and the remaining 2.5m for the public. The Company will be listed on the Catalist with a market cap of around $60.4 million. The offer will close on 6 June at 12pm and starts trading on 8 June 2017.

Principal Business

The Company is an environmental engineering company in the field of water and waste management.  Water management refers to the treatment of raw and used water and Waste Management refers to the treatment of refuse in incineration plants.

The business can be divided into two main segments:
  1. Engineering, Procurement and Construction ("EPC") - services include upgrading of existing water treatment plants, upgrading of pumping station capacities and replacement of aged equipment 
  2. Operations and Maintenance - maintenance services to ensure reliability and minimal disruptions to customers' operations
The contracts for the business are usually between one to three years in duration. 

Financial Highlights

The revenue of the company has been growing impressively at a CAGR of 71% over the last 3 years from $19.4m in FY2014 to $57.2m in FY2016. The net profit grew to $5.9m in FY2016. 

Based on the pro forma net EPS of 2.07 Singapore cents and the enlarged share capital of 268.6m shares, the historical PER is around 10.9x. The EPS of 9m 2017 is also showing an improvement over the same period last year by around 5%. 

Assuming EPS grow by 5%, the EPS for FY2017 will be around 1.05 x 2.07 = 2.17 Singapore cents.

Use of proceeds

The Company intends to use the proceeds to undertake bigger projects, to expand its business premises as well as pursue opportunities outside of Singapore, in the South East Asia region

What i like about the Company
  • Established management and track record. Sanli is in business for more than 10 years with an experienced team. Its business has been growing steadily over the last few years
  • Attractive and growing sector. The waste management sector is an attractive sector and with increased focus on environmental issues, such technical expertise is scalable beyond Singapore, especially in this region. Singapore's strategic objective to become self-sufficiency in water would also bode well for the Company
  • Integrated engineering solutions and services. The Company is able to provide a cost effective, "one stop" solution to customers. This will allow the business relationships to be more customised and less "commoditized"  
  • Presence of Heliconia as pre-ipo investor. Heliconia is an wholly-owned unit of Temasek but independently run. The investments made by Heliconia, such as Jumbo and Kimly, have done well post IPO. Hopefully, this track record will continue
  • Strong order book of S$105.8 million. More than 50% of the orders will be fulfilled in FY2018. This will provide some certainty to the profitability of the Sanli in the near term.
  • SAC Capital track record has been good so far. Even the recent Aoxin Q&M IPO by SAC is trading above market
  • Dividend policy of at least 20% of net profit. Assuming the EPS is 2.17, that will translate into a yield of around 2%

Some of my concerns
  • Overly reliant on PUB. While PUB will be a good customer, it is quite hard to imagine a company being so overly dependent on one single customer. This will be a key risk for me
  • Ability to scale business outside of Singapore. While the Singapore market is "stable", it will also be pretty limited. The ability to scale the business into ASEAN will be critical for the next phase
  • Small cap company
Peer Valuation

As you can see from the table above, the market actually pays a premium for water companies. They are trading at multiple ranging from 11x-22x. Assuming an EPS of 2.17 and a conservative PE range of 12-15x, the fair value of Sanli will be between 26 to 32 cents. A more aggressive PE range of 16 to 20x will mean a price between 34 to 43 cents.

Mr IPO chilli rating

I like the fact that Company is reserving some shares for the public and endeavor to pay 20% of profits as dividend. The track record of recent IPOs as well as that of SAC Capital also bode well for the debut. The presence of Heliconia adds an added layer of comfort (enjoy while it last). I understand the demand for the placement shares is pretty strong as well. Overall it, it is a 3 chill rating for me. Hoot ah! 

Please note that Mr. IPO is vested through the placement tranche and the chilli ratings are super duper biased.


Anonymous said...

Hi Mr IPO, good morning.
I have never bought an IPO before so I have a question.
If i submitted 50,000 shares for Sanli IPO, which is about $11,250 and the results came out as awarded with 5,000 shares, which should cost $1,125. How do i get back my remaining $10,125?

fqfeq said...

Hi Mr IPO, can i know where you get your placement shares from? which brokerage firm?

Anonymous said...

Hi, is there a holding period for IPOs?

Chris said...

Hi, may I know how to apply for this IPO placement? Contact SAC capital? Thanks

Mr. IPO said...

No, unless you are owners, cornerstone or pre ipo investors

Mr. IPO said...

They will refund into your bank account the balance directly on the second day after the ipo application closes.

Mr. IPO said...

... via UOBKH

Mr. IPO said...

You can contact UOBKH unless you know the manager - SAC Capital

TiOnG said...

Any UOBKH broker to intro? want open account

Anonymous said...
This comment has been removed by a blog administrator.
hong said...


i have placed my order for the IPO. But i would like to know will the order be reflected anywhere? i couldnt find it in my SGX online account or ibanking side at all. i just wish to see if and verify that i enter the correct CDP account number ?

i feel so dumb now. Sorry. It is my first time pallot.

Hope to seek your reply. Thank you for your precious time.

Warmest Regards

Mr. IPO said...

Depending on your internet banking platform. It can be under ESA Application. If apply via ATM, you would get a receipt.

anon said...

Hi Mr IPO,

Could you please tell me which portal you get your peer information from?
I have looked up Share Investor and SGX StockFacts Screener but find the peers categorized in the same category of the said stock to be very generic and wide.
Thanks very much.

Mr. IPO said...

Capital IQ by S&P

Anonymous said...

While they show 9M ended 2017 Income Statement, they did not show 9M ended 2017 balance sheet. Looking at 2016 Balance sheet, only one concern. The trade payable is more than the trade receivable by a lot. Yes the Current asset is more than the current liabilities but compare to previous year, the current ratio had dropped quite substantially. I wonder why they did not release 9M ended 2017 Audited balance sheet but why they can release 9M ended 2017 P&L? Are they hiding something?

Unknown said...

Hi Mr. IPO, Just wondering can I place more than one time using 3 different banks? I already placed 62k share at DBS. Thanks!

Mr. IPO said...

You can't ! ^_^

Wayne said...

The big amount for the trade payable in 2016 is mainly due to the huge dividend they paid to the shareholders in Dec 2016.

Anonymous said...

Hi, I couldn't find the listing under "apply for IPO" in DBS platform. Please advice. Thanks!

Mr. IPO said...

Try ESA application?

Anonymous said...

Hi Mr IPO, I applied for the shares thru the ATM machine. The application for Sanli closed today as noon. May I know where to check the results of my applications?

Mr. IPO said...

You can check your bank balance or results of the ESA application or CDP account tomorrow after 8pm to be safe.

Wayne said...

Sigh nothing again.

Anonymous said...

What is the result from the ipo? I applied and didnt get a single lot....

Anonymous said...

Nothing to... Only ever gotten once... Gaylin! Pui...

Anonymous said...

Anyone here says " status not available"?

Ba Chor Mee said...
This comment has been removed by the author.
Mr. IPO said...

Usually at their discretion. My guess is once a year.

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