Shopper360 Limited

Shopper360 Limited ("Shopper360" or the "Company") is placing out 38m placement shares (comprising 18m New Shares and 20m Vendor shares) at $0.29 each for a listing on Catalist. Since there is no public tranche, my ratings is probably less meaningful to majority of the readers. The IPO will close on 28 June at 12pm and starts trading on 30 June 2017 at 9am. Based on the IPO price, the market cap is around S$33.2m

Principal Business

The Company is a well-established shopper marketing services provider with 30 years of experience in the retail and consumer goods industries in Malaysia. It connects its customers with retail partners, namely the hypermarkets, supermarkets, pharmacies and convenience stores. Shopper360's customers base include MNCs such as Nestle, F&N, Samsung and its key retail partners include Giant, Cold Storage and Aeon.

The Company seems to be able to provide the entire value chain from "in-store advertising and digital marketing business" through Pos Ad and Shopwave to "retail force management" via Jump Retail and "Sampling Activities and Events Management" through Tristar Synergy

Financial Highlights

The Company's revenue showed strong revenue growth (CAGR of 29%) of RM 68.4m from FY2014 to RM113.5m in FY2016. The 1H FY2017 continue to demonstrate strong period-on-period growth of 23%. Profits grew from RM5.3m in FY2014 to RM13.3m in FY2016 and 1H FY2017 profits continue to grow strongly by 43% to RM3.5m.

Extrapolating from this, assuming full year net profit grow by a more conservative 30%, the profit for FY 2017 will be around RM8.7m (excluding non recurring gains) x 130% = RM11.3m

Projected FY 2017 EPS = 3.94 Singapore cents x 61% recurring portion x growth of 30% = Singapore 3.12 cents. That translate into a forward PER of 9.3x

Fair Value

It is not easy to find comparable for this company as the business model is pretty unique. Assuming a PE multiple of 11-13x (which i think is reasonable), the fair value is around 34 cents to 40 cents.

Dividend Yield

The Company intends to pay a dividend of no less than 20% of profits to equity holds for FY2017 and FY2018. Assuming EPS is 3.12 cents, that will translate into a yield of 2.15%

What I like about the Company

• Established Track Record since 1980s - i like the fact the this is not a "fly-by-night" company. It was established since 1980s and was a pioneer of in-store advertising. It was awarded the Enterprise 50 award twice and in the top 10 SME100 in Malaysia in 2014
• One-stop shopper marketing services group - The Company is able to provide a full suite of advertising, marketing and shopper engagement services to its clients
• Reputable clientele and retail partners - I like the clientele, that seemed to be made up of brand leaders such as Nestle, Dutch Lady, Samsung, Fonterra, etc This will reduce any "default" risk from non-paying clients
• Strong revenue and profitability growth over the last 3 years - I like Company showing strong growth trajectory and it seems like Shopper360 is firing all cylinders on both revenue and profits
• Cash flow generative and Dividend paying  - The company is highly cashflow generative and has positive operating cash flows for the last 3 years. The Company intends to pay no less than 20% of its net profits as dividends and i have a preference for dividend paying company as it demonstrates good capital discipline and positive cashflows
• Interesting shareholder  - Besides the founders, KPF (part of FELDA) owns about 20.29% of the Company post IPO. KPF is one of the oldest co-operative in Malaysia and its presence should hopefully provide some comfort and attract institutional investors to the IPO

Some of my concerns

• Malaysia - The Company is exposed primarily to the political risk and economic performance in Malaysia and the ever depreciating MYR against SGD is always a key concern as it reports its numbers in SGD. On a related note, i am not sure if the Company is able to scale its business outside of Malaysia in the long term
• Changing demographics and shopping behavior over the longer term - While this may not be a concern in the near term, over the longer run, malls in Malaysia may go the way of USA and China where shoppers go online and less to "bricks and mortal". The Company would need to find ways to continue to be a key partner for brands in the digital space, otherwise, it will overtime, lose its positioning among brand owners
• Vendors are cashing out - while my preference is that vendors don't cash out at IPO and stay vested in the Company for at least one year post IPO (of course, if they are  quietly using the proceeds to help support the price post IPO, then i will keep quiet lol). The comfort is that the founders are not cashing out but it is KPF, the co-operative that invested in the company in 2006 and 2009
• Small Cap company

My Chilli Ratings

I quite like the growth trajectory and the unique business model of the company that is highly cash generative. The IPO valuation also looked fair to me at less than 10x PE multiple. My concerns will be its "Malaysia-centric" focus and the depreciating MYR. It wouldn't be fair for me to give it a one chilli rating as i do find the Company attractive enough. 

While my chilli rating does not matter since it has no public offering, i think it deserve at least a 2 chilli rating. Do note that i am vested from the placement tranche.