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Sunday, 30 July 2017

SGX Bull Charge Giveaway Contest

This is a follow up post to "An Evening with Mr. IPO" with the contest details and how to get a running slot beside Mr. IPO.

Date and Time

Date:   17 Nov 2017
Time:     4pm till late

Prizes to Giveaway

12 complimentary tickets to SGX Bull Charge 2017. To ensure a wider and fairer distribution, I have decided to give out the complimentary tickets individually

Two Simple Steps To Participate

Step 1:  Visit the Facebook Page of Mr. IPO here and search for the post "SGX Bull Charge Giveaway Contest"

Step 2:  Just click "Like" or "Love" or any of the circled emoticons on that particular post. (Fans who share the post with their friends get extra brownie points πŸ˜€ )


When will the contest end?

The contest will run from now till 8 August 2017 and the winners will be announced on 9 August 2017 in conjunction with our National Day! (You always know i am patriotic right?)

How will winners be picked?

When the contest ends, I will use this  Random Picker (or other similar website) to pick 12 random numbers and matched the number to the participants according to the sequence of those who have "liked" the post. For example if you are the first one to "like" the post, you will be allotted "number 1" and if 1 is picked by the random picker, you would have won one of the complimentary SGX Bull Charge slot!  In this way, all data are kept confidential! 

The winners will just need to message me their emails so that i can pass them on to SGX for processing.

How can Mr. IPO fans dress up for the event?

While there are many fans, there is an equal number of "enemies" who can't wait to "chop" Mr. IPO to pieces. What can you do to save Mr. IPO if you are attending the event? 

I looked at similar events in the past to get some ideas...

Option 1: Dress like the Bull Mascot to help create "double" and "divert" the attention...

Option 2: Dress up as friendly neighbours from across the causeway

Option 3: Dressed as real fans of Mr. IPO (this will really help confuse the chilli choppers)

But please don't dress up like this or you will be slaughtered for sure... lol

Happy participating and good luck! 

While I can't guarantee the chance of you winning will be easier than applying for "3 chillis" IPOs but i can assure you that it won't cost you a cent to apply for this... better than the $2 wasted at the ATM ! 

Thursday, 27 July 2017

Aspen Group Holdings - Balloting Results

Aspen announced that its PUBLIC tranche was 7.8x subscribed. Super misleading considering that the public tranche is small. I think most IPOs try to use the entire subscription rather than the public tranche only. 

I didn't compute but if combined with the placement tranche, it's probably about "1x subscribed" 

Commenting on the subscription results, Dato' Murly, Executive Director, President and Group CEO of Aspen, said, "We are greatly encouraged by the strong investor demand for our IPO, which we believe reflects the confidence in the potential of our properties, prospects and future plans. We would like to thank them for their strong support and welcome them as our new shareholders. We will strive to grow our business further, riding on the bright prospects for the property development sector in Penang. With this listing, we believe Aspen is positioned for the next phase of growth regionally.
The balloting and placement table below. 

Interesting to see institutional support from Setia, Affin and Daiwa. They probably see "value" and know the company better than what my untrained eyes can't see. 

Good luck to those investors who went for the ATM. You will be 100% Bao Tio as indicated by the table above. Hope it's durian Bao Jiak tomorrow. 

Happy Aspening

Sunday, 23 July 2017

An Evening with Mr. IPO - 17 Nov 2017

It is my pleasure to invite you to spend an evening with Mr. IPO.... πŸ˜‹... Ok the subject header is misleading but the storyline goes like this... 

Mr. IPO has been invited by SGX to help promote SGX πŸ‚ Bull Charge 2017 among its legions of fans  where SGX will sponsor 10 lucky readers to run beside Mr. IPO for the 5km Mass Run (yes, it's complimentary like the free Sambal Chillies he dishes out. 😎). 

Unfortunately, Mr IPO may have to put on a disguise πŸ‘Ή due to the number of corporate titans that he has offended, especially from CEOs that have gotten chopped chillies from him. They frankly can't wait to chop πŸ”ͺ him into pieces πŸ˜“

As a safety precaution, Mr. IPO will be training up so that he can get away πŸƒquickly from the chopping knives. He may also volunteer to become the "face" of SGX Bull Charge 2017. Hence, readers who are keen to spend an evening with Mr. IPO will get to run beside him, and hopefully get a picture with him afterwards. 

This will be the first of a series of promotional post which I will be writing on SGX Bull Charge. If you have any suggestions on how I can run an online campaign to allocate the 10 tickets, that will be much appreciated! I intend to give out the tickets in pairs πŸ‘«

Personally I have participated in the annual Bull Run around Marina Bay since 2010 for the free exercise T-shirts 🎽(missed last 2 years due to travel schedule). The view is awesome as you run 5km around from the floating platform towards One Fullerton and then turn left to Marina Bay Sands before heading to the Singapore Flyer and ending back at the Floating Platform. I am sure you will enjoy the run. 

More details on how you can get a complimentary pair of running tickets will be released in the coming days on the Singapore IPOs Facebook Page (hint hint: what are you waiting for?)

Happy Bull Charging!  More information on the event below and can be found on here.

Event Details

Saturday, 22 July 2017

Aspen (Group) Holdings Limited

Aspen (Group) Holdings Limited ("Aspen" or the "Company") is offering 173.27m shares at $0.23 each for a listing on Catalist, of which 4.348m is for public and 168.922m shares via placement. The offer will close on 26 July 2017 at 12pm and starts trading on 28 July at 9am. The market cap based on the IPO price is S$199.32m. You can obtain a copy of the prospectus here.

Principal Business

The Company is a Malaysia-based property development group with a focus on developing affordable residential and mixed development properties and target middle-income mass market segment. Aspen intends to provide "value-added" options to its units, such as furnishings and home appliances of reputable brands at cost-efficient prices.

The flagship project of Aspen is the "Aspen Vision City", a 245-acre freehold mixed development project. Aspen has entered into JV agreements with Ikano (Ikano is the franchisee of IKEA for the South East Asia region and owns the franchise in Singapore) to develop some properties within the Aspen Vision City (artist impression below on Aspen Vision City)

While you can see the Penang bridge in the picture above, do note that Aspen Vision City is not on Penang Island itself but on the mainland in Batu Kawan. I have no clue where Batu Kawan is or its future potential. 


The Company has 3 stated on-going projects launched in Penang, namely Tri Pinnacle, Vervea and Vertu Resort. The estimated date of completion for Vervea and Vertu is 3Q 2018 and Q1 2021 for Tri Pinnacle. This will be the time where the bulk of the profits will be recognised. 

According to a Company fact sheet which i received from the IR company, most of the projects launched have already been sold ranging from 57% to 83%. According to that same fact sheet, the aggregate confirmed sales which have not been recognised as revenue amounted to approximately RM 1.108 billion. This will probably be the revenue that will be coming on stream in 2018 and 2021 when the projects are completed.

Financial Highlights and Valuation

The Company has started to recognise some of the revenue using % of completion method. The earnings will be very lumpy as the Company will be recognising revenue from ongoing projects and then launching new projects within the Aspen Vision City.


According to the valuation by Henry Butch, the market value of the projects is around RM 1,233.50 million. That translate into S$392m as of today's rate. I am not sure how that was accounted for in the books.

The prospectus is frankly not easy to read, i have also no idea how to interpret "Gross Development Value" and "Projected Development Profit". Perhaps someone in the know can enlighten me. Is the Company trying to tell me that there are profits to be recognised in future, that is why they can sell the Company at a high price to me today?

Use of Proceeds

The Company is raising $39.9m and intends to use the proceeds to acquire new land for future developments.


You can see from the above table that the Company will continue to be tightly controlled by the existing shareholders. It is interesting to note that the CEO, Dato Murly started working at Ivory Properties when he was 18 and he is only 30 years old now.  A very young CEO indeed (not to mention his high pay as well...)! 

SBK intends to subscribe for 26m shares at the IPO and the public will hold around 17% of the Company post listing. The SBK shareholdings will then be distributed to its shareholders post the listing of the Company according to the table below.

From the table below, you can see that shareholders of AVG and SBK paid around 2.08 cents to 4.41 cents. New investors are coming in at 23 cents.

Peer Valuation

Looking at the peer table above, probably the closest peer are Oxley and World Class Global (which is not in the table). You can find my write up on World Class Global here.

According to the prospectus, price to book is around 3.9x (23 cents divide by NTA of 5.89 cents). As you can see from the table above, most of the peers are trading at below 2x book value and generating a profit. Even World Class Global, with exposure to Penang and Australia, was launched at a price to book of around 2.28x based on its IPO price (now would be lower given the share price is below 26 cents).

If i use World Class Global as a benchmark, where its valuation is lower than Aspen, where investors are more familiar with it and where the founders probably supported the IPO at launch, the subsequent drop of WCG below its IPO price probably send a strong signal that investors here are not able to appreciate such companies - not to mention one that is coming purely from Malaysia. 

What I like about the Company
  • Focus on marketing quality properties to the masses - This is probably the right market segment to target in Malaysia where there will always be demand for affordable quality housing. 
  • Tie up with IKEA for mixed development - The JV with Ikano to develop the shopping mall and open an IKEA mall within Aspen Vision City is a good move to attract traffic to the mall. Mixed development concept is also catching on with families now preferring to stay close to amenities. 
  • KPMG is the auditor - okay at least they are using one of the big 4 to audit their accounts but i have not heard of Henry Butcher, the independent valuer
Some of my Concerns
  • Single country (mainly Penang) exposure - All the projects are located in Penang. Given the listing is in Singapore and reporting the earnings in Singapore, investors will have demographic, economic and currency exposure to Malaysia, especially that of Penang. Given how the MYR has depreciated against the SGD over the last 30 years, investors will have to see if they want the currency exposure. (This is not the case where they are taking advantage of local costs in MYR and selling the products in USD)
  •  Expanding to other South Ease Asia regions - The Company intends to expand into regions like Thailand, Philippines, Vietnam and Cambodia (sounds like an Oxley in the making).  While it holds potential, it is really too early to tell if they will be able to execute their strategy of exporting "affordable quality housing" overseas.  
  • Lumpy earnings and huge premium over its NTA - Adjusting for the estimated net proceeds and post invitation share cap of 886,617,900 shares, the NTA of 5.89 cents is at a huge discount over the issue price of 23 cents. Investors are paying forward for the future value of the land that is currently under development.
  • Company is currently loss making with no stated dividend policy - Company is still loss making with no clear sights of when it will turn in a profit or pay out a dividend. It will probably need to use all the profits generated to continue developing Aspen Vision City.
  • Joint ventures is always a risk - Sorry for my pessimism, JVs is always a risk unless the partnership is already tried and tested. While the tie up with Ikano is promising, there is always a risk that it may not work out. Here is an article on the fight over iconic Capitol in Singapore.
My Chilli Ratings

Comparing World Class Global where i give it a zero chilli rating, it will be hard for me to give anything higher than that for Aspen, especially when local investors here are more familiar with WCG, and that WCG promised to pay dividends and has a better price to book valuation.

(Additional note: Hattan Land, a developer from Malacca, did a reverse take-over of VGO, placed out shares at 28 cents as well and the current price is below its "IPO price" as well).

As such, it is a zero chilli rating for me. I will give this IPO a miss and perhaps use the $2 for a nice bowl of Penang Laksa.

Straw Poll

Thursday, 20 July 2017

Union Gas - Balloting Results

Union Gas announced that its IPO drew strong support from investors and was 7.1x subscribed.

Ms. Alexis Teo (εΌ ζ·‘ε©·), Chief Executive Officer of the Group said: "We are very encouraged by the positive response to our IPO from investors and I extend my deepest appreciation for the confidence they have shown in us. This listing is just the beginning for Union Gas. We have several expansion plans and I hope that our new family of investors will continue to support the Group as we carry out these plans."

The balloting table is presented below for your information:

It is difficult to get the shares through the public offering. Investors who applied for 100,000 shares will have 8% chance of being allotted 6,000 shares. 

The placement was quite likely to be placed out to close friends and relatives as well

Good luck to those who managed to get some shares!

Happy "gassing" πŸ˜‚

Tuesday, 18 July 2017

Netlink NBN Trust - Balloting Results

Netlink NBN Trust announced its IPO was 2x subscribed. Considering its large float, this is a decent subscription rate.

Mr Tong Yew Heng (唐耀兴), Chief Executive Officer of the Trustee-Manager, said, "The
robust demand from both institutional investors and retail investors to our IPO is a strong
vote of confidence in the NetLink Group's unique investment proposition. The NetLink
Group's future growth is driven by a clear strategy to tap opportunities in the residential,
non-residential and non-building address point segments, underscored by the continued
growth in data consumption. Going forward, we intend to provide our Unitholders with
regular and predictable distributions."

 The balloting ration is below.

It is not difficult to be allocated (between 70% to 100% chance) to get some shares. Mrs IPO managed to get 13,000 shares. I made the mistake of not getting Mrs to apply in the 100,000 range as that will get her 25,000 shares. (I didn't apply as i want to use cash sitting inside my SRS account. see post here)

Good luck to those who managed to get some shares. I guess i have to buy some from the open market. Let's see how it opens tomorrow. 

Saturday, 15 July 2017

Union Gas Holdings Limited

Union Gas Holdings Limited ("Union Gas" or the "Company") is offering 60m shares comprising 30m New Shares and 30m Vendor shares at $0.25 each for a listing on Catalist. The IPO will close on 19 July 2017 at 12pm and starts trading on 21 July 2017. 1.28m shares will be available for the public with the rest via the placement tranche. The market cap is around S$50m based on the IPO price. You can find the prospectus here.

History of Union Gas

The founder of Union Gas is a self-made man. His rags to riches story was featured in the Straits Times in Oct 2014, do take some time to read here. He bid for the cab license and started Trans Cab with 50 taxis in 2003 and tried to list Trans Cab in Nov 2014 (my IPO write up is here) but unfortunately for him, the IPO was de-railed by a poison pen letter. With hindsight, the onslaught of Uber and Grabtaxi (one of the risks I mentioned), Trans Cab would be facing extremely challenging times now. Similarly, i can foresee challenging times ahead for Union Gas.

Principal Business and Future Plans

Union Gas is an established provider of fuel products in Singapore with more than 40 years of track record. The Company has 3 main business segments:
  • Retail LPG Business

Union Gas is a leading suppliers of bottled LPG cylinders to domestic households and CNG to retail and industrial customers in Singapore. It operates more than 100 delivery vehicles and supply bottled LPG to more than 140,000 households in Singapore. My family used to use Union Gas but we have since switched to Esso LPG cylinders. If you refer to the Financial Highlights section below, you can see that revenue from retail LPG business declined from $24.8m in FY 2014 to $21.2m in FY 2016. As more households switched to piped gas and a highly competitive and fragmented retail market, the revenue is likely to either stagnate (stablise if you really want a more positive word from me πŸ˜‹) or continue trending downwards.

As part of its business strategy to "stop the downtrend", one of its future plan is to spend $4m of the proceeds to acquire other "dealerships" or competitors. Not sure if this is good for consumers πŸ€”

  • CNG Business

CNG vehicles are unfortunately not catching on due to lack of government incentives to do so. With increased tariffs and the cost of diesel being cheaper than CNG, the number of CNG vehicles have been shrinking over the years. See article here. A series of safety issues resulted in LTA requesting all CNG owners to send the cars for inspection and this is probably the nail in the coffin for CNG vehicles once the existing owners scrap their cars. So this is a business that would cease to exist in the coming years.  This is evidenced by the sharply declining CNG business from $19.7m in FY 2014 to $9.4m in FY 2016 (see Financial Highlights below). I will probably write off this business in 3 years.

The Company recently obtained a gas retailer license from EMA on 17 April 2017 which allows Union Gas to supply and retail pipled natural case to customers in the services and manufacturing industries in Singapore.  The Company intends to expand this to customers in F&B in 2018. The Company intends to use $1m to fund this new business. It is too early to tell if the Company will succeed in this new business line.

  • Diesel Business

This is currently not a significant part of the business and generated $5.1m in revenue last year.

Financial Highlights

Despite strong declining revenue, Union Gas is actually able to paint a nice glowing picture of increasing gross margin and profitability. Gross margin grew by 18.4% to 32.5% and net profit increased from $2.4m to 4m from FY2014 to FY2016. How in the world are they able to do this?

Let's take a deeper look.

The Company was able to show an increasing profitability over the last 3 years because it was able to "control" the cost of sales quite effectively given that the supplier is from UEC Group.  This is reflected by the declining cost of sales over the last 3 years.

In April this year, they also formalised the distributorship agreement and the pro-forma was presented. This helped to boost up the gross profits despite the declining revenue and improved the margins quite dramatically. Without seeing the books from UEC group, it is hard to determine whether this related party transaction is sustainable or whether it has been subsidized. However, let's take a look at the key assumption of the pro-forma. You can find the assumptions in Appendix 2.

The pro forma assumed the same fix rate for the last 3 years! We have no idea how this will impact FY2018 and beyond as the fix rate is only for FY2017. I think it is highly misleading to present the pro-forma financial statements here and somewhat painted a even more optimistic picture. 

Based on the historical performance, EPS is 1.98 cents for FY2016 and based on the enlarged share cap of 200m shares, the PE is 12.6x. The NAV per share will be 5.46 cents.

Dividend policy

The Company intends to distribute no less than 50% of its net profit as dividends for FY2017. Assuming a historical EPS of 1.98 cents is used, the dividend yield will be around 4%. This can be potentially higher at 6% if the Company is able to achieve a higher EPS as evidenced by its pro-forma statement.

What I like about the Company
  • Experienced management team - The founder has seen the ups and downs of the business and can probably provide sound advice to the management team. Alexis Teo, his daughter and CEO is the heir apparent with 13 years of experience. However, this savvy business man is not going to let go of its business for cheap. A picture of Alexis is below.

Some of my concerns
  • The Company is facing strong headwinds. The CNG (vehicles) and LPG business (domestic) are deteriorating as evidenced by the declining revenue over the last 3 years.
  • Scalability of business - The Company said in it may expand beyond Singapore and that there is "considerable potential to expand our offerings to household products and health products". I really don't see how this predominantly domestic player is able to scale its business know-how outside of Singapore or expand into healthcare products. Seriously?
  • The founder is selling vendor shares at IPO - I wouldn't like to see the founder cashing out in the face of challenging headwinds. The founder still holds 70% of the Company and the CEO (his daughter) holds zero at Union Gas but around 5% of UEC Group. The CEO has no stake in the game and her shareholding at the UEC Group creates potential conflict of interest everywhere! 
  • The crown jewel is still with the founder  - To be competitive in this business, you need to control the upstream (that is what the founder said himself in the interview "His earnings hit a plateau when the company exited the market. His margins became lower because of tight controls by the big boys who wanted to close the supply vacuum. I knew we had to bottle our gas," says Mr Teo, who started distributing gas under his own brand Union in 1995.". After this IPO, the founder still own Union Energy while Union Gas is just a distributorship arm that he listed. Ironically, Union Gas will not even own the trademark of Union Gas as that belongs to the UEC Group πŸ˜“. The small "saving grace" is that the Company has the right of first refusal if the bottling plant is ever sold. Why is the bottling plant not part of this IPO in the first place?
  • Related Party Transactions - It's tough trying to figure out the different related party transactions that affects Union Gas through the prospectus. There are potential conflict of interest everywhere and how they mitigate them will be critical
Fair Value

The company is being listed at a historical PER of 12x which is fair. Assuming the revenue remained the same, the pro-forma EPS of 3.06 cents can potentially be sustained for FY2017. However, i will assume a 20% decline due to the CNG business. The EPS will be 2.45 cents.

Assuming a fair value of 10-12x, the fair value is around 24 to 30 cents.

Given the headwinds, the only way it can continue to maintain the EPS is through buying cheaper gas, which i have no clue as to how to "guess it". (punt intended 😜) given that it is a real black box.

My Chilli Ratings

This is one IPO which i struggle to give a chilli rating. 

My gut feel for the IPO is that it will debut well given the positive IPO sentiments, supposedly low PE and high dividend yield. The small float of shares also made it easy for the gas and taxi tycoon to place out the shares to friends and family. Small punters should be able to get out easily at a profit.

However, for the longer run, I have a few key concerns:

  1. Union Gas is just a distributor and don't own the brand
  2. The transfer pricing is somewhat of a mystery each year and there are potential conflict of interest between UEC Group and Union Gas everywhere
  3. It is hard to buy into a Company whose fate is controlled by a company related to the key shareholder
  4. We are buying into a business where the CNG vehicles are depleting dramatically and where the LPG business is slowly being replaced by piped gas

It's probably a 2 chilli rating for the debut and 0 chilli rating for the longer run until we sort out some of the concerns mentioned above. The transfer pricing of the LPG is one area where transparency is needed and by having its own bottling plant, that conflict would have been resolved prior to the IPO.

Union Gas Straw Poll

Monday, 10 July 2017

Netlink NBN Trust (Update)

I have previously written a post on Netlink NBN Trust over the weekend. This is the updated post based on its registered prospectus and i will just highlight some of the updates made but the primary analysis and chilli ratings remained unchanged. You can find the prospectus here.

The final pricing is fixed at $0.81 and the offer will end on 17 July 2017 at 12pm and starts trading on 19 July 2017 at 3pm. πŸ€” Why 3pm..... did they consult a fengshui master or are they trying to limit first day selling?? There will be 185m shares for the public and the balance 2,713m shares will be done via placement. The Manager also has an over-allotment option of another 123.456m units. The market cap will be S$3,129.8m assuming the over-allotment is not exercised.


Assuming the over-allotment is exercised, then shareholding held by Singtel will fall from 24.99% to 24.23%

Growth Prospects

The final prospectus seemed to tell the story of "growth better" as it showed the possible growth from a study by MPA in the different business segments.

My Chilli Ratings

Remained unchanged at one chilli. Apply only if you like it. There are 185m shares on public offer (similar to HPT), so you should be able to apply and get some shares from the ATM.

Polling (as of 10 July 2017 11pm)

 Click me to vote!

As of 10 July 2017, 545 have voted and 46% of you have voted "Yes". Please feel free to vote if you have not already done so.

Happy Netlinking! πŸ˜€

Saturday, 8 July 2017

Netlink NBN Trust

NetLink NBN Trust ("Netlink Trust" or "NLT" or "Trust") is set to be the biggest IPO in Singapore in the last 6 years where it will raise around S$2.3 billion. The last mega IPO was when Hutchison Port Holdings Trust raised US$5.5 billion in 2011. According to various sources, NLT is set to priced its IPO at 81 cents. This is at the low end of its book building range of 80 to 93 Singapore cents, indicating lacklustre demand from investors. This is one of the widest book building range i have ever seen and it probably reflected the manager's inability to gauge the demand for its units. 

According to this article, "Pricing is done to ensure that there is a diverse base of investors ranging from long-only asset managers, insurance companies and high net-worth individuals," one person with knowledge of the matter told The Straits Times. This probably means that the manager see different demand level from different types of investors and the pricing was to accommodate the demand from the lowest denominator. 

The number of units on offer will be 2,898,000,001 under the Placement and Public Offer and subject to over-allotment. More details will be available when the public tranche is launched this coming Monday, 10 July 2017. The IPO will close on 17 July 2017 at 12pm.


Coming back to Netlink Trust. If you haven't heard about this Company, you should probably know OpenNet. In simple words, OpenNet is the company that installs high speed fiber network into your home as part of the government's initiative to enable high speed connections across the nation. I upgraded from ADSL 100mbps to highspeed fiber 1Gbps in April this year and i have to tell you that my experience with OpenNet was horrible (given its monopoly status) but once i "tasted" surfing the net with fiber optics speed, i can't imagine moving back to the stone age speed anymore unless it is replaced by better technology.

Anyway, long story short, if you want the history of how eventually this company ended up on Singtel's books and why it is mandated to divest more than 75% of its holdings by April 2018, you can read the history from The Motley Fool here. Singtel will continue to hold 24.99% of the Company post IPO. Actually has a series of simpler to understand articles on Netlink Trust, i would encourage you to read them (going through the preliminary prospectus was a torture - boringly written, somewhat similar to its business)

Principal Business

According to the prospectus, Netlink Trust owns and deploys all the fibre optic cables and offers wholesale dark fibre services to qualifying clients (Singtel, Starhub, M1, My Republic and ViewQuest) as well as install connectivity to homes, offices and buildings. With respect to each residential end-user connection, the Trust receives a "one-time" connection fee and a recurring monthly connection charge. Most of the internet users subscribed through one of the ISP providers and the business will be pretty stable as most of the contracts are contracted for 12-24 months and in the event end consumers switched providers, it doesn't really affect NLT as it will still be on its network.

Why Business Trust?

NLT has to use a business trust structure as it was capital intensive to build the network. Under a Company structure, it would be weigh down by the depreciation charge and would have difficulty paying out high dividends. As such, a business trust structure allows the stable cashflows to be "extracted" and be paid to investors in the form of distributions.

The structure diagram is below for your information:

Pro-Forma Forecasts

It is good that the Trust is able to provide financial forecasts given the stability of its business

In terms of financial performance, the Company provided forecasts for FP2018 and FY2019. The profit after tax is expected to be $44m and $66m respectively. Frankly the profit before tax is not "as important" as the cashflows as this is a business trust and it is allowed to distribute cash that is generated by the business.

As you can tell from the cashflow statement above, the Trust is highly cash generative. The cash generated from operations continue to be healthy at $140.4m in FP 2018 and $217.6m in FY 2019. 

A more important measure is the EBITDA (which stands for Earnings Before Income Tax Depreciation and Amortisation). This reflects better the financial position of NLT, which has high depreciation charges but doesn't impact the Trust has they have been incurred. EBITDA stands at $153m and $240m for FP2018 and FY2019 respectively.

Enterprise Value ("EV") = market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments.

In our case, using the pro forma balance sheet as of 31 March 2017, EV = $3,130m + $507m - $15m = $3,622m (ball park). Assuming EBITDA of $200 to 240m for FY 2018 is used (most optimistic), the EV/EBITDA is between 15-18x. This is not "cheap" as according to PitchBook, the median EV/EBITDA buyout multiple is around 8-9x. Singtel is probably better off "divesting" the assets at this valuation as it should be accretive to its balance sheet.

The pro-forma balance sheet (see Appendix B) was prepared based on the assumption that the IPO price was $0.88. Assuming the IPO price is 81 cents, that would imply that the IPO is issued at a discount to its book value and the price-to-book ratio is around 0.92x. While this is good, frankly, there is no real market for the value for the assets given the tight regulatory regime.

The Trust intends to distribute around $113m for FP2018 and $179m for FY2019 as indicated in the prospectus above.

Use of Proceeds

The use of proceeds is as above and the issuance expenses is around $58m. It is a good year for local investment banks this year.


With such a large issuance of 2.89b shares, you will need an army of underwriters and placement agents and the key players are below. I am offered placement shares but i am seriously contemplating whether to pay that 1% or get it from the ATM given the large issuance. I will decide on that when the number of shares available for public offering is released.

Every investors (be it insurance companies, asset managers, family offices, private banking clients etc) should be able to get what they "demand" for. As such, don't expect much fireworks on its debut. as there isn't any scarcity premium and everyone will get at least some shares. The pricing at the lower end of its book building range probably meant that the demand was lacklustre. 

What i like about the Company
  • Resilient business with predictable SGD income stream - The Trust enjoys a recurring revenue from each connection it made. As such, the revenue stream is pretty stable as internet connectivity at home is now an "essential" item with the proliferation of smart devices. Even the fridge in the kitchen needs a connection! It is also not affected by and could actually benefit from a "war" among the ISPs (Internet Service Providers), who usually subsidize the installations to boost subscribers' base. There is also not much "forex risk" to worry about.
  • Monopoly business in residential - The Trust is the sole provider of residential fibre network in Singapore, which is a maturing market with high demand for fibre broadband services. It is unlikely that the government will allow a competitor to provide similar service due to the high capex, hence pricing has to be highly regulated.  
  • Room for growth - As of 31 March 2017, there were approximately 1.1m residential end-user connections supported by the NLT's network, representing 76.3% of all residential homes in Singapore. As such, there is still some room for growth as more homes become wired to the fiber network. According to MPA, the broadband penetration in Singapore is around 88%. In addition, MPA believes ADSL subscribers will migrate to fibre by 2021 and HFC-based services will cease the same year. 2021 probably represent the D-date for NLT. Based on the few diagrams below, it seemed like the Trust can still benefit from some growth
  • Fibre optics remained the preferred network with long usage life - According to the prospectus, fibre optics continue to support advanced technological applications and meet the requirements of sophisticated end-users with high bandwidth requirements. As such, there will be limited substitution risk. Wireless broadband connection such as 4G and 5G is unlikely to replace fibre as it is less reliable. The Trust-Manager also believes the cables last much longer than the 25 years of accounting lives as large components of the fibre network infrastructure is buried underground, resulting in less wear and tear
  • Reasonable Manager Fee - The $900,000 Manager Fee seemed reasonable although maybe there isn't much to do for them.

Some of my concerns
  • Highly regulated environment - The Company operates in highly regulated environment and that includes the pricing it can charge for its network and the pricing is reviewed every 5 years. Any change to the pricing or regulations will have a material impact on the Trust even though my view is that it should remain stable. The highly regulated environment also means that any non-compliance or services lapse will result in hefty penalties for NLT
  • Highly competitive non-residential business -  The Trust competes against the Telcos for the non-residential business. Nothing is stopping the Telcos from laying their own network to these buildings. 
  • Arrangement with Singtel cease after listing - Following the listing, some of the existing arrangement with Singtel (such as access to Singtel's existing ducts and manholes) as well as collaboration with Singtel to jointly undertake projects to construct ducts and manholes and cost-sharing will be on a case-by-case basis. This may result in higher capital expenditure to NLT
  • Huge public float and lacklustre demand at book building - The huge float may result in downward pricing pressure during debut as investors demand should be easily fulfilled. It was a good thing that pricing was at lower end and below book value
DPU Yield

Assuming the IPO price is 81 cents, the projected yield is 5.43% for FP 2018 (annualised) and 5.73% for FY2019.

As of Dec 2016, there is an estimated 1m fibre broadband subscriptions and this is expected to grow by 40% to 1.4m subscriptions by Dec 2021 (according to MPA). This will provide the catalyst for "DPU growth" for the coming years.

Distributions will be made on a semi-annual basis with the amount calculated as of 31 March and 30 September each year and the Trust will pay out the distributions within 90 days of the end of each distribution period.

My Chilli Ratings

This is a huge IPO where 75% of the Company will be sold to the public. This whopping IPO is going to suck up much of the liquidity in the market place and probably signals the end of our IPO market.  hahaha ok pardon my pessimism. 

Given its criticality as the backbone of Singapore's IT infrastructure, this is one asset that probably will never be sold to foreign hands. As such, if you want to invest in this IPO, you should be looking at this IPO from the yield perspective as it is not intended for a short term punt. Ask yourself if the income stream is sustainable and whether it will grow over time. I like the fact that it has a monopoly over the residential connection and that its DPU should improve over time. My gut feel is the Manager will try to outperform its forecast as they will try to be conservative in a prospectus. 

If you are happy with a 5.43% yield that is growing to 5.73% , then this stock should form part of your retirement portfolio for the long term. However, given the huge float and lacklustre demand at book-building, my view is that the debut will be muted and i don't expect much fireworks as most demand should be fulfilled. The pricing for the book building was within my expectation as i wouldn't be buying if it is not yielding at least 5%. Assuming investors demand a floor yield of between 5.2% to 5.8%, the share price should be range bound between 76 cents to 85 cents in the near term.

If you are considering buying some for the retirement pot, you might want to subscribe to some shares at the IPO and then consider whether to add on to the position post IPO.

It is a one chilli rating for me - apply only if you like it.  

Poll - Are you going to subscribe for Netlink Trust?

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