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IPO Chilli Ratings

IPO Chilli Ratings
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Pasture Holdings Ltd

Pasture Holdings Ltd ("the Company" or "Pasture") is a pharmaceutical products and medical supplies and devices company based in Singapore. The Company is offering 20m placement shares at $0.25 each via placement. The IPO will close on 7 June and list on 9 June and the market cap based on the IPO price is $33m.  Since there is no public offering, my coverage of this Company will be limited but I will highlight what potential investors may be keen to know. The Company supplies pharmaceutical products and medical supplies and devices to businesses and governments. The various products and services are listed below. The Company spent a fair bit of real estate (on the gatefold) to share the following: It has a tie up with McKesson (private label supply agreement) for medical, surgical supplies and devices that will expand its product portfolio  and distribution network It has a global footprint serving over 50 countries and targeting new markets such as India and Middle

World Class Global Limited

World Class Global Limited ("WCG" or the "Company") is offering 136m shares in the IPO @ 26 Singapore cents each for a listing on Catalist. New shares of 100m and vendor shares of 36m will be sold to the investors. There will be 3.98m shares for the public offer and 132.02 m shares via placement. There will be an over-allotment option where underwriter can offer an additional 10.8m shares if the demand is good at the IPO. The offer will close on 13 June 2017 at 12 pm.
Principal Business
WCG is a real estate company that undertakes property development and property investment in major cities in Australia and Malaysia. It was spun out from its SGX-listed parent – Aspial Corporation Limited.
Its property development projects include Australia 108 and AVANT in Melbourne, Australia. The Company also hold 28 properties in Penang, Malaysia, which comprises mainly shop houses. The Company intends to develop the land parcels or refurbish the properties.

Launched Projects


While WCG mentioned about its launched projects and the above chart on the right showed how much "capital value" has accredited vis-à-vis the purchase price, it is still not easy to figure how the eventual profitability of the projects and how much "profits" is coming on stream at completion and handing over to investors. Similarly, it is challenging to ascribe any value to the projects yet to be launched.

Projects to be launched

Financial Results

The Company has been loss-making for the last 3 years because the accounting rules in Australia does not allow for progressive recognition of revenue for the projects. As such, profitability will be lumpy as it can only be recognised when the "keys" are handed over to the buyers. Based on the projects shown, the first year of profit should come when the first project, Australia 108 is delivered.

The NAV per share of the Company is 11.4 Singapore cents after taking into account the estimated net proceeds of the IPO and based on post invitation share capital of 905.7m shares. This is at a huge discount to the IPO price of 26 Singapore cents. Investors are paying for "future earnings" and capital appreciation of its properties.

Use of Proceeds

The majority of the issuance is used towards the acquiring and construction of properties.

What I like about the Company

·       Established and experienced management team – The Company has proven that it is able to deliver by launching projects in Melbourne, Australia and pre-sold more than 90% of the units.
·       High % of Pre-sold units – The Company managed to sell more than 90% of its residential units. Assuming all the purchasers are "credit worthy" and able to complete the sale, this removes the "sale" risk and the remaining will be execution risk depending on whether the Company is able to keep its costs in rein. In other words, profits are "locked in" as long as the cost of the projects don't over-run. It is a good to know that there had been no instances of cost overrun in the history.
·       Dividend paying – WCG intends to pay dividend of up to 50% of its net profit for the year ending 31 Dec 2019 and thereafter.

Some of my key concerns

·       Unclear tax and regulatory regime – The Company spent so much time informing investors that it could potentially be subject to Australia's investment regime and the various implications alongside. While I am still clueless whether investors in WCG will be subject to any taxation, it highlights the risk of government intervention in this sector, be it through taxation or measures to control demand and supply
·       Lumpy earnings – In most jurisdictions, the accounting rules allows for revenue recognition using % of completion method. In Australia and in the case of WCG, the rules created 3 full years of losses. Earnings will be pretty lumpy given most of the high value projects are in Australia. It also means that WCG is unable to "collect cash" from investors based on the % of completion.
·       IPO price at premium over its NAV – The IPO price of 26 cents is a very high premium over the NAV of 11.4 Singapore cents. Investors are paying to participate in the ability of the Company to generate future earnings. This represents a price to book of 2.28x
·       Highly levered company – Property development requires a lot of financing and as of 31 Dec 2016, the Company's gearing ratio (debt/equity) is around 5.6x. Any material rise in interest rate or liquidity freeze will impact the Company severely
·       Forex risk – The Company will be affected by currency movements in AUD and MYR. AUD has always been relatively stable whereas MYR has been on a downtrend against SGD for the longest time
·       Imbalance of cash flows – The developers receives a "deposit" from the buyers (say 20%) and have to finance the cost of construction through bank leverage, it can only collect the remaining balance at the completion of the projects. While this creates an incentive for developers to complete the projects quickly, it also means that the WCG has to finance the construction, resulting in negative cash flows
·       Vendors cashing out at double the cost – I am not sure of the background of why Koh and Ng owns 5% each with Aspial holding 90% in the first place and I am not sure why they are even allowed to divest part of the shares at the IPO! Shouldn't it be pro-rata with Aspial at least too? In any event, the founders are "cashing out" just doesn't sound right to me. I certainly hope they are using the cash to support the IPO…
·       Why is the Singapore property development business not part of WCG? – I have no idea why this is the case.

Fair value

Look at price to book or PE multiples of WCG against the likes of UOL, City Development and Capitaland, the Company looked over-valued in all aspects.


I am quite tempted to give it a zero chilli rating based on the above fundamental reasons, however, I understand the placement is probably placed out to close F&F (friends and family). Given the positive IPO sentiment and possibly tight placement, it will probably debut above water.  

Please note that I have taken a very small tranche to "test out" Zico Capital but on hindsight i should have given it a miss as i was too busy to do the analysis. Fingers crossed!


Anonymous said…
I have estimated the forward PE for 2018 ~ 3x which is consider attractive.
You cannot compare WCH against capital , Uol and City Dev.a better one will be Oxley ,SL , CES.
Anonymous said…
The forward PE2018 is around~3x based on 12% margin.
Very attractive
Mr. IPO said…
Yes agree that Oxley, CES better comps, should have included them in my analysis as well. Was writing this at midnight my time. Are you saying the projects will be handed over next year ?
Anonymous said…
Over $1.2b sales locked in. Assuming 20% net margin, we should be looking at $240m profit by 2019 when both the Melbourne projects are completed. The company promises to pay up to 50% profit as dividend then. Net earning per share will be over 26ct (which coincidentally is the IPO price too)..... and 13ct will be paid out as dividend then. Sounds like a great deal!
Mr. IPO said…
Hahaha. Sounds too good to be true ! Lol
Anonymous said…
Not too difficult to imagine. Bulk of the shares will still be in the hands of the family. 80% with Aspial and 5% between Koh and his brother in law. Leaving only 15% to the public. The Koh family owns around 70-80% of Aspial. Everything still in their hands despite being listed.
Anonymous said…
The aspial bonds that are listed will matured by then. Not sure how aspial will redeem them. Probably from the dividends paid from world class to aspial.
Anonymous said…
That's right. The bonds were issued to build the Oz condos. So it only make sense to pay back when completed. Hence the high dividend.
Anonymous said…
Dear Mr IPO,

I went to look back at this article

Proposed Spin Off

Aspial is preparing the spin off of its real estate business in Australia and Malaysia on Catalist. The spin off is subject to market conditions but if it happens, the gearing ratio will come down, which is great for bond holders.

Real Estate Business

As of 18 Feb 2016, Aspial has locked in revenue of $580m for property projects in Singapore and this will be progressively recognised based on the stage of construction. It also has locked in A$1.05b worth of revenue from Australia 108 and Avant but these revenue will be recognised only upon completion of projects. Potential revenue based on current market price for Aspial remaining projects is estimated to be > $1.8 billion.

Could you provide some insight on the following:
1) what liabilities are carried over to World Class from Aspial and whether the Aspial Bonds are carry over to World Class?
2) Regards to guarantor of the bonds, is there any changes after the spinoff of world class?
3) Since "locked in A$1.05b worth of unrecognized revenue from Australia 108 and Avant" is transferred to World Class and "As of 18 Feb 2016, Aspial has locked in revenue of $580m for property projects in Singapore", how will Aspial be able to redeem these bonds ($574M from 2018 to 2020)?
4) How will the spin off of world class be beneficial to Aspial Bond retail holders?

Since you are also vested in one of the Aspial bonds, it maybe worth to take alook at this and help retail holders understand more.

Thank you.

Mr. IPO said…
Sorry traveling now. Quick replies.
1. No change. Aspial bonds will remain at Aspial level and the inter company loans will continue

2. No change to guarantor.

3. Aspial can redeem the bonds when WGC recognize the sales and profits and dividend up the cash or repay intercompany loans if any.

4. Spin off - no "real benefit" other than WCG can raise its own funds for expansion without asking Aspial to do it. In other words, self operating.
waileong said…
Actually the ipo doc doesn't say if there's progressive payments needed from buyers. Anyway, most of the risks highlighted appear common to property developers. Only the partial cashing out by the two directors appears a little odd.