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Friday, 8 June 2018

Astrea IV Class A-1 Bonds

Astrea IV is the first listed retail private equity bond and is offering 3 classes of bond, Class A-1, Class A-2 and Class B Bonds as shown in the table below. 

Half of the S$121m of Class A-1 Bonds will be available for retail investors through a public offering. The remaining $121m Class A-1 placement tranche, Class A-2 and Class B have already been placed out and fully subscribed.

According to Bloomberg announcements and press releases, the Issuer received order book of $1.8b from more than 100 accounts. This means that the placement tranche was subscribed by 4.5x. The institutions are sophisticated investors and this is a definitely a strong order book considering the current market. Given the strong institutional demand, i would expect this PE Bond to be very chilli hot with retail investors as well ...

Given that the only tranche available for the IPO is only Class A-1, the focus of my write up will be limited this tranche. The bond IPO will end on 12 June 2018 at 12pm.

It took me a few hours to figure out how the Astrea IV PE Bonds work and I will try to summarise it as simply for you as possible...  😎

What are Private Equity Bonds ("PE Bonds")?

PE Bonds are basically bonds that are backed by cash flow from the private equity funds. 

To put it simply, the 36 private equity funds in Astrea IV hold a lot of underlying companies (596 to be exact) and when a private equity fund sells one portfolio company, the cash that is generated by the sale will be returned to its investors (i.e. Astrea IV). This cash proceeds will then be used to pay bond holders and other obligations. The sector breakdown of the 596 companies are presented below.

What are the Private Equity Funds?

The list of 36 Funds can be found in the prospectus. You can also see the portfolio in the Fitch Report as well. The Fitch report is actually quite good and the link is here

The list of funds are actually of very high quality. Names that are quite well known include Apollo, Blackstone, CVC, KKR, TPG and Warburg Pincus.

To understand the managers better, the websites of some of the managers and companies are as follows:
  1. Apollo Global Management - Fund VI and Fund VII are in Astrea IV. You can find out more of about the company and some of its past investments here 
  2. Bain Capital
  3. Blackstone Fund VI is the largest position at 9.2% NAV and Blackstone is GP with the largest position at 10.6%. You can find out more about the Manager here
  4. Carlyle VI - You can see some of the current investments here 
  5. EQT Mid Market 
  6. IK Fund VII has 15 companies. You can find more details about the Fund and the 15 companies here 
  7. KKR is one of the pioneers of Private Equity founded by Henry Kravis and George Roberts. KKR is well represented here with 3 funds, KKR 2006, KKR North American XI and KKR Asian Fund II. The website is here. It is interesting to note that KKR Asia Fund II invested in Go-Jek (see news release here)! 
  8. Silver Lake
  9. TPG
  10. Warburg Pincus
According to the Fitch report, the quality of the portfolio is pretty good with most of them in the top 3 quartiles.  

My view on the portfolio - This is an excellent portfolio which most investors (other than pension funds and SWFs) cannot gain access to ... too bad only the bonds are on offered. The portfolio should generate sufficient cash flows to repay investors

Who is the Sponsor?

The Sponsor is wholly owned ultimately by Temasek. With such a strong Sponsor, the Issuer even have to put out a FAQ to tell you that the bonds are not guaranteed by Temasek . . . 😂  hahaha probably the bankers are selling the bonds to their investors using Temasek as the key selling point ? 🤔

What is the priority of payment

The priority of payment determines how the cash generated by the 596 companies can be used for every 6 months.

You can see that bond holders ranked ahead of the Sponsor in the graphical presentation below

What is the Loan to Value

The loan to value shows you the ratio of "outstanding bonds to remaining portfolio value". The Issuer has to maintain a ratio of 50% or less. This is a strong protection mechanism as it ensures that there is sufficient asset coverage of 2x. In the unlikely event of default, if the value of the assets can be relied upon, then you can sell the assets and repay the bond holders. 

From the chart above, you can see that Class A-1 has a LTV of 16.5%... this is pretty low and is ranked ahead of Class A-2, B and Equity.

What is the Interest Rate? 

The Class A-1 Bonds has an interest rate of 4.35% per annum and the interest payable semi-annually.  

A bonus of 0.5% of the principal amount will be paid out if certain performance threshold is met. Based on my analysis, this bonus is a "give-away", so i am expecting this bonus to be paid out at the end of year 5.

Illustration - Repayment Schedule assuming you invest $100,000 of Class A-1 bond 


When will i get repaid?

According to the prospectus, you will get repaid on year 5 (the 10th distribution date) when there are sufficient cash in the Reserves Account. It is interesting to note that the cash of US$40m will be set aside every 6 months for the first 5 distribution dates and US$39m for the remaining 5 distribution dates. In total, there will be US$395m in the Reserves Account and end of year 5 (more than than US$391 million principal amount). 

However, Class A-1 Bond Holders will be paid ahead of Class A-2 bond holders from this Reserve Account. This is quite funny given Class A-1 and Class A-2 are considered pari passu (whatever that means).

In other words, Class A-1 bonds are "super senior" and "super safe" because you only need $181m in the Reserves Account to fully redeem Class A-1. Probably that is why it is suitable for retirement income ... !?! (see article here)

This means that by year 2.5, there will be US$200m in the reserves account and that is more than sufficient to repay the class A-1 bonds. Class A-1 bondholders will be "de-risked"  in 2.5 years since they are repaid ahead of Class A-2 bond holders. 

According to the prospectus, there is also a chance that the balance in the reserves account can be accelerated if the underlying cash flows are strong due to "Sponsor Sharing".

If the Cash Flow are so strong, what is the Liquidity Facility for?

There is a $100m liquidity facility that is provided by DBS Bank at the onset. This facility can be drawn upon if there is a shortfall (another GFC?). The facility will help ensure that bond holders receive their interest at the end of each 6 months. This is a structural safeguard for bond investors. 

In other words, if there is another crisis where there are no cash flows from the PE Funds, DBS bank will step in to pay you interest! However, you better pray that the crisis last less than 3 years, otherwise Astrea IV will go kaput.  hahaha

What is this "A" rating?

S&P and Fitch gave the Class A-1 bonds an "A" rating. 

Have you ever wondered why the retail bonds (Perenial, Aspial, Oxley) and Hyflux Perps are not rated ? This is because it is first of all, costly to get a rating and even if they tried to get one, they will probably get a junk rating. 😂

Most of the wholesale bonds here are also not rated. Hence it is actually quite significant for the bonds to be rated and it provides additional comfort to retail investors that two reputable rating agencies have reviewed this product. The S&P report is here

What is the chance that I will not be repaid? and by when? 

Zero. Actually i didn't say it. 

According to the prospectus pages 125 to 128, the latest you can get repaid is year 6 and that is taking into account 3 years of drought (zero cash flow). 

As such, under normal circumstances, Class A-1 investors will get repaid in year 5.

The independent research consultant (page 129 to 147) using a Monte Carlo analysis also said so .. . (See table below) 

Fair Value of the Bonds

According to the article in Business Times today, retail investors are being "looked after" . . . in other words, the Issuance is priced to sell and they probably left some money on the table. A similarly rated bond will be trading at between 2.96% to 3.57%. At an interest rate of 4.35% (excluding the potential bonus), it is attractively priced. Definitely much better than the pathetic interest rates from the banks.

My view: If you have spare cash that you can hold for 5 years, or if your cash is sitting idle in the SRS account, you can consider parking some of the cash in the Class A-1 bonds instead. BUT please do not treat this as an equity IPO and expect a "pop" on day 1.... It is not supposed to "pop" as this is a YIELD product

What I like about the Bonds
  • Reputable Sponsor with track record - This is the 4th series of the Astrea Bond and the Issuer is wholly owned by Temasek. The first transaction was done in 2006, implying they have long track record
  • Quality PE Funds - The portfolio is of good quality and managed by well known managers. There are hidden value in this portfolio as some of the funds are only 4 years old and there is potential for the funds to appreciate in value
  • Strong equity ownership - The Sponsor continues to hold the equity interest in the structure, providing strong alignment of interest
  • Bonus sharing - I like the sharing mindset of the Sponsor, especially with retail investors  
  • Super safe - This is a super safe product. You have two rating agencies rating it A, you have the Issuer and Independent Research Consultant telling you that your money will get repaid in year 5, and you have Fitch telling you that the sponsor has a non-financial objective for doing this 😀
Some of my concerns
  • Why only Class A-1 for retail investors - My view is that the product is pretty safe and the interest rates of Class A-2 and B are definitely more attractive. Perhaps the Issuer can considering offering these other tranches to retail investors in future
  • Bond like returns from PE asset class - While i appreciate the attractive coupon, the underlying asset class is definitely capable of generating better returns. In future, maybe a rating is not necessary and the "savings" can then be passed on to investors as higher returns hahaha
  • Small bonus element - the bonus element can be higher, i rather they pay less interest to Class B and give more to us!  (starting to get greedy...😋)
  • It is not easy to understand - The priority of payment and the structure is not easy to understand and you will need to spend time to read it. I appreciate the efforts the Issuer has in trying to make investors understand by having a colorful gatefold, public presentations. They have also put up explainer videos on their website. The explainer video is pretty good and i would strongly encourage you to view it here.
Mr IPO's conclusion

My Chilli ratings usually apply to equity IPOs and is not designed with Bonds in mind. hahaha. 

Assuming the chilli ratings is based on the attractiveness of the yield and how "safe" it is, then it will definitely be a 3 CHILLI HOT rating from me.

This is one of the rare chances for retail investors to invest in such a high quality bond. 

Will you apply for Astrea IV Class A-1 Bond?

Polling time - will you apply for the bond? Take the poll here.

Monday, 28 May 2018

Jawala Inc

Jawala Inc ("Jawala" or the "Group") is offering 18m shares at $0.25 each for a listing on Catalist, of which 17.6m shares will be via placement and the balance 0.4m shares for public offer. The offer will close on 30 May 2018 at 12pm. The market cap post listing is $29.6m.

Principal Business

The Group is a forest resource company based in Malaysia with a focus on industrial tree plantation in Sabah. The main business is the management of forestry resources, and the planting and extraction of timber. 

Jawala currently manages a licensed area of 11,043 hectares in the Sapulut Forest Reserve for 100 years starting from 12 Aug 2015. Upon expiry, the Chief Minister has discretion to grant a further extension of the license for another 100 years.

Financial Highlights

The Group is profitable in FY2017 and 1Q 2018 revenue and profitability has also grew significantly compared to the prior quarter. I have no idea how to project the performance since i am not privy to the financials

The Group is listing at a historical PER of 62.7x but that may not be a fair reflection as Q1 2018 has shown a much higher profitability. Without any guidance, it is tough to project what is the valuation at which the Group is listed. Using the Q1 EPS multiply by 4 also doesn't sound quite right either.


I have no idea what the future prospects hold but i guess what the Group is trying to tell you is that the value of the "wood assets" is on an uptrend

Future Plans

The Group is raising ~$3m to develop the plantation site and for working capital, the balance $1.35m is for listing expenses. Not sure if it can execute what it wants to do unless the funds are generated internally. The amount raised from the IPO is probably not sufficient to execute all its plans.

What I like about the Group
  • Profitable Group - The Group has a Q1 profit of RM4m and that is significantly higher than Q1 2017. However, i am not sure if this is one time profit or it is sustainable
  • Sustainable forest management  - While i don't like companies cutting down forest indiscriminately, the way to go is to ensure the wood is being harvested in a responsible manner
Some of my concerns
  • Change in government may led to change in natural resources policy in Malaysia - While the license has been granted, a change of government may have unintended consequences and impact the Group. I am not sure why the Chief Minister has "discretion" to grant another 100 years but this discretion may be removed in due course
  • Valuation of natural resources is challenging - I am no expert in this field and even then, the valuation of such assets is definitely challenging. I am not sure if you remember the Sino Forest scandal but it is definitely not easy to value such assets and having management you can trust is absolutely critical 
  • Non big 4 auditor - With no due respect, my preference is for a big 4 to be the auditor of this Group
  • Why bother having a public tranche given the small issuance size - While i am always a proponent of company offering some shares for the public, but given the small issuance size, it just doesn't make sense to waste time and money on a public tranche as the total amount raised is low. This is also a pretty small cap company.
  • All the shares are held by Datuk Jema Khan - He holds 84.4% of the Company and the balance is held by the public. Trading post listing will be limited as the shares will be tightly held
  • IPO sentiments is weak - The local market sentiments has been pretty weak for a while now. While the number of shares issued can be tightly controlled, it doesn't solve the overall negative market sentiments
Chilli Ratings

While the Group is turning profitable, I will give it a miss due to the concerns raised above. It will be a zero rating for me.  

Happy Jawalaing

Polling Time

You can take the poll here.

Friday, 18 May 2018

Hyphens Pharma - Balloting Results

Hyphen Pharma announces that its Public Offering was 152x subscribed. This is inevitable after my 3 chillis 😂 (but primarily due to the small public tranche).

The balloting table is below and I got zero shares from the public offering.

Sunday, 13 May 2018

Hyphens Pharma International LImited

Hyphens Pharma International Limited ("Hyphens" or the "Company") is offering 29.6m shares at $0.26 each of which 3m will be for the public and the rest via placement. The IPO will close on 16 May 2018 at 12 pm and starts trading on 18 May 2018. The market cap based on the IPO price will be $78m.

Principal Business

According to the prospectus, Hyphens is one of the leading specialty pharmaceutical and consumer healthcare groups. The history dates back to 1998 and Hyphens has a direct presence in 5 ASEAN countries - Singapore, Vietnam, Malaysia, Indonesia and Philippines and distribution networks in Hong Kong, Myanmar, Brunei, Cambodia and Oman.

The group now comprises 3 core businesses:
  1. Specialty Pharma Principals - Exclusive distributorship to market and sell a range of specialty pharmaceutical products in the ASEAN region. Revenue from this segment accounted for 53.6% of total revenue for FY2017
  2. Medical Hypermart and Digital - Medical hypermart for healthcare professionals and online B2B platform. Revenue contribution for FY2017 is 35%
  3. Proprietary Brands - develop, market and sell own branded range of dermatological and health supplements such as Ceradan, TDF and Ocean Health (see picture below). Revenue contribution is 11.4% for FY2017

Key Competitive Strengths

Financial Highlights

Looking at the revenue trend, i like the fact the revenue is increasing and has increased from $78m in FY2015 to $113m in FY2017. While the net margins has declined from 6.46% in FY2015 to 5.4% in FY2017, the EPS has improved from 2.1 cents to 2.5 cents correspondingly.

It is good to see the Company presenting the pre and post IPO EPS. Based on the post IPO 300m shares and the EPS of 2 cents, the historical price-to-earnings ratio is 13x. According to the prospectus, the NAV per share is around 10.8 cents.

The Company will pay at least 30% of its net profit as dividend. Assuming the EPS remains the same (conservative), 30% x 2 = 0.6 Singapore cents. That translate into a yield of 2.3%. This will be the "minimum yield" for FY2018 (hopefully).

Fair Value

Assuming the revenue continue to grow by 20% and net margin "dropped" further to 5%, net profit will be $6.79m and that will translate into EPS of Singapore 2.26 cents. That translate to a forward PE of 11.5x.

According to the recent SGX research report in May 2018, the healthcare stocks are trading at a "healthy" average PE of 35.8x and a dividend yield of 2.5%.

I will use a more conservative PE of 16-20x for my fair value computation. Based on the EPS of 2.26 Singapore cents, the fair value range will be between 36 cents to 45 cents.

Use of proceeds

Ownership structure

The public investors will only hold 9.9% of the Company with the Cornerstone investors holding the other 10.1%. Innomed Holdings (61.1% Mr. Lim See Wah and 38.9%) will hold about 65.4% of the Company with the balance held by Mr. Tan Chwee Koon. The shares will be very tightly held.

Future Plans

The Company intends to implement the following strategies:

  1. Expand and Strengthen its product range - launch 5 proprietary branded products in 2018 and expand its range of health supplements. It also intend to develop drug products for skin conditions and acquire product formulation for next generation line of Ceradan products
  2. Scale its presence in existing markets and expand to new geographies - expand marketing and distribution network by leveraging existing network and into new ASEAN countries, Australia and Middle East
  3. Enhance and leverage its online platform - to capture opportunities in the new digital age
  4. Expand through M&A, JVs or Alliances and improve operational efficiency by consolidating its operations into a new integrated facility and using automated packaging to increase production efficiency

What I like about the Company

  • Strong ASEAN presence - I like the fact that the company has an established presnce in ASEAN. It makes the company attractive in two ways - acting as a distributor for established brands where the brand owner needs to work with just one company for scale. The other attractiveness will be that it will be more attractive to a potential acquirer. The Company would do well to continue scaling up and having a direct presence in the entire ASEAN region
  • Regulated industry - Healthcare is a heavy regulated industry and this is a double edge sword, depending on which side of the fence the Company is in. It makes it difficult to crack into new businesses but once you are in, it is pretty monopolistic in that regard
  • Proprietary brands - The proprietary brands will allow the company to brand its own products and enjoy better control over the costs and margins. The downside will be how it manages the relationships with other established brands to avoid potential conflicts
  • Cornerstone investors - The IPO is supported by Nikko Asset Management, Qilin Asset Management (family office) and Maxi-Harvest Group. They will subscribe for 30.4m shares
  • Attractive Valuation - The IPO is priced very attractive relative to its peers that are listed on the stock exchange. In fact, it is priced to debut well.
  • Dividend paying - I like profitable and dividend paying companies. The Company intends to pay at least 30% of its net profits as dividends for FY 2018 and FY 2019 and that translate into a yield of more than 2.3%

Some of my concerns
  • Expansion and execution risk - ASEAN is a diverse region with different regulations and cultures. It will not be as straight forward setting up presence and gaining market share. In addition, setting up of online platform will likely reduce the selling prices of products and that may not be well received by the brand owners. As such, the major risk will be the execution of its business plans
  • Highly regulated and competitive industry means that there could be time delay or the products may not be successful registered or launched in the respective countries. The pricing of the products could also be controlled by law. In addition, the competition may be strong even though the market could be fragmented
  • Auditor - with no disrespect for the existing auditor, I would have preferred a big 4 that has more resources and best practices
Mr IPO Ratings

This is a pretty straightforward IPO for me. It is a 3 chill ratings based on the relatively attractive valuation, dividend paying mindset and the fair value range of 36 cents to 45 cents. Readers may want to know that i have refreshed the definition of my chilli ratings recently where the ratings will reflect what i think the opening price will be. You can read it here.)

I have received 20,000 shares from the Placement (I asked for much more than that ...) and will be applying for more shares through the ATM.

Happy Hyphening

Polling Time

Will you apply for the IPO shares? You can participate in the poll here.

Thursday, 19 April 2018

SLB Development Ltd - Balloting Results

SLB Development ("SLB" or the "Company") announced that its public tranche of 8m shares was 20.6x subscribed. Combining with the placement tranche of 238m shares, the overall IPO was 1.7x subscribed.

Commenting on the robust investor demand, Mr Matthew Ong, Executive Director and CEO of SLB, said, "The positive demand from both retail and institutional investors clearly shows the confidence in SLB's business model and growth potential. This is just the beginning and with a view to pursuing opportunities in Singapore and abroad, we are excited to bring SLB to the next level of growth."

The public offering balloting table is below:

Investors who applied for 10,000 to 49,000 shares will have a 52.5% chance of being allotted 5,000 shares.

With regards to the placement tranche, 6 investors (i lumpted ICH and Mr Toe as one) were allotted a total of 91m shares (~38% of the issuance). The names comprises some known names in the property circle such as Simon Cheong of SC Global, Low See Ching of Oxley, Teo Kee Bock from Super Group, Lin Yu Cheng from United Enivrotech,  as well as the former "S-Chip" kingpin, Han Seng Juan of Centurion and Toe Teow Heng from ICH Group.

I hope these "towkays" will help support the debut... 

Happy SLBing!

Wednesday, 18 April 2018

Asian Healthcare Specialists Limited - Placement Results

Asian Healthcare Specialists ("AHS" or the "Company") announced that its has completed the placement of 46.9m shares to 337 placees.

10% of the placement shares went to the Ho Bee Land's boss, Mr. Chua Thian Poh. Given the small issuance size and placement, my view is that the debut of the shares will be well supported.

I had given it a 3 chilli rating here.

We are encouraged by the strong investor support in the IPO, which reflects confidence in AHS’s track record and growth prospects. We believe that a listing on Catalist will allow us to access the capital markets to expand our business locally and regionally, as well as grow our talent pool to continue building our brand name. This indeed marks a major milestone for us as we work towards our goal of giving movement, quality and life to years ” - Dr Chin Pak Lin, Executive Chairman and CEO of AHS.

119 of the readers participated in the poll to guess the opening price and 30% guess it will open below 30 cents and 50% guessed it will be above 30c, with the 20% don't giving it a hoot.

It would have been better if the Company has reserved some shares for the public...

Sunday, 15 April 2018

SLB Development Ltd

SLB Development Ltd ("SLB" or the "Company") is offering 8m shares at $0.23 each for the public and 230m shares via placement. The public offer will close on April 18 at 12pm and starts trading on April 20. Based on the IPO price, the market cap will be around $210m.

Principal Business

SLB Development Ltd is a diversified property developer that was "spun out" from the listed Lian Beng Group. In case you don't know, Lian Beng is one of the big local construction firms along side Chip Eng Seng, Koh Brothers and Lum Chang.  "新" Lian Beng used to be part of the "developer" arm of Lian Beng but has since decided that the time is ripe for it to "step out" of its parent's shadows and moved vertically upwards to "developer" status - meaning to own the land bank and the units to be constructed and sold.

Post the listing, Lian Beng will continue to own 74% of SLB and the balance will be held by the public. 

Competitive Strengths

According to the prospectus, there are 4 key competitive strengths:
  1. Established track record - A 17 years track record in SIngapore's property development under the Lian Beng Group
  2. Established network of business relationships with other developers - SLB has formed JVs with Oxley, KSH, Koh Brothers and Heeton Holdings. According to SLB, forming JVs with other developers will continue to be a core strategy
  3. Venturing overseas - The Company currently has one big project in Gaobeidian in China
  4. Led by experience and dedicated management team - Lean management team facilities efficient and quick decision making to secure land-site or building
Financial Performance

I have always shunned the construction / developer sector because the earnings are lumpy and unpredictable. This is the case for SLB as well as you can see from the financials over the last 3 years where profits fluctuate quite widely. Based on the enlarged share capital and the post invitation EPS of 1.65 (page 79), the PER based on FY2017 is around 13.9x


Besides the portfolio above, SLB has the upcoming pipeline of property developments to be launched in 2H of 2018.

According to the prospectus, the estimated development profits for these projects is about $135.6m (page 70)

Let's see if we can find the RNAV of the Company by looking at Appendix C of the Prospectus.
According to C-7, the unaudited pro forma NAV = $91.96m  
Amount of cash raised less the listing expenses = $51.38m (page 33 of prospectus)
Development profits not taken into balance sheet = $135.6m (page 70)

RNAV = (91.96 + 51.38 + 135.6) / 931m shares x 100 = 29.96 cents

The IPO price is around 77% of the RNAV, implying investors are buying in at a 23% discount to its RNAV. 

Use of Proceeds and Future Plans

The Company intends to use the IPO proceeds to fund existing projects and for working capital purposes. 
  • $18m for acquiring new land sites
  • $18.7m for funding pipeline projects
  • $15m to repay bridging loan with OCBC

What I like about the Company
  • Listing at the right time - The Company is listing at the time where investors believe the local market is turning the corner. Timing is critical in property investing and the Company is being spun out at an opportune time to take on a new identity of its own
  • Ability to tap into JV network - It seemed like SLB has managed to form close working relationships with the other "smaller" developers in Singapore. The listing will also enable SLB to tap the capital markets and take on bigger projects by co-sharing the risks and rewards
  • Parent company can help ensure costing is reasonable when bidding for projects - The biggest challenge of any developer is to bid at the right price for new land bank and having a parent who specializes in the construction of these projects will enable SLB to bid at the "right prices" when factoring in the construction costs and the potential selling prices
  • IPO price is at a 23% discount to its RNAV - It is usually rare for prospectus to include "forward looking statement" and page 70 includes the projected estimated profits from the projects. Assuming the valuation and estimation is accurate, the price-to-book is around 0.77. This is the pertinent issues faced by developers whereas REITs trade closer to its book value and construction companies a bigger discount

Some of my concerns
  • The property development space is pretty competitive - There are many competitors in this space. The bigger ones are like Capitaland and City Developments while the smaller ones can range from Oxley to World Class Global
  • Expansion via JVs - While JVs is a way to mitigate developmental risk of projects, there is no assurance that JVs will work out amicably. Look at the disputes between Pontiac Land and Perennial regarding the Capitol project. Hence, JVs to me is a double edge sword, it is like leverage, it can work for you or against you.
  • Still a family run business - Lian Beng will hold a 74% in the Company and the management is still helmed by family members. The close linkage with Lian Beng can be a positive and a negative as well. SLB will feel more "obliged" in awarding the construction contracts to Lian Beng and other construction firms may not be willing to take on projects from SLB unless they feel that they are not "disadvantaged" in the bidding process
  • Directors are not subscribing to the shares- According to the prospectus, none of the directors are subscribing to the IPO
  • Earnings are unpredictable - Given the sector, developmental profits are always unpredictable  
  • Big IPO Issuance of 238m shares - One of my concerns is the sentiments and the issuance size of 238m shares may have an impact on post listing performance. Having said that, i understand the demand from investors for the placement tranche is robust. SAC Capital also have a good track record of "first day pops" in their IPOs. You can search for the IPOs managed by SAC Capital here
Peer Comparison

I have used some of the peers above (including those which the Company has JV with). As you can tell, Lian Beng is trading a better valuation but that is also because it has other elements such as Construction business etc, which historically suffers from low price to book. Investors who don't mind such exposure can consider the parent company for "better value".

Assuming however, if SLB trades to its developer peers, the valuation discount should narrow. Given the unpredictability in earnings, perhaps using PER may not be the best measure. If i use the price to book of 0.9x to 1.1x, that would imply a trading range of between 27 cents and 33 cents.

Mr IPO Chilli Ratings

I hesitated for a long time what ratings to give to this IPO as it is not so straightforward.

If i look at the attractiveness of this sector and the size of issuance, i will give it a one chilli rating. Subscribe only if you like it.

If i take into account the track record of SAC Capital as well as the better valuation relative to its peers, I believe the IPO deserves a higher 2 Chilli rating.

If i combine the two and factor in the current US markets and IPO sentiments, then it is a 1.5 Chilli Rating for this IPO.

Note that Mr. IPO is vested. Happy IPOing

Polling Time!

Take the poll here.

Saturday, 14 April 2018

Asian Healthcare Specialists Limited

Asian Healthcare Specialists Limited ("AHS" or the "Company") is offering 46.9m Placement Shares at 23 cents each for a listing on Catalist. The Company will have a market capitalisation of $66.7m based on the IPO price. The IPO will close on 18 April at 12pm and starts trading on 20 April 2018 at 9am. 

AHS is an orthopaedic healthcare specialist and provider offering treatments for the common medical problems listed below:

Principal Business

The Company was established in 2013 by its founding medical specialists - Dr. Chin Pak Lin (CEO), Dr. David Su and Dr. Tan Chyn Hong with a vision to create a one-stop specialist clinic. In 2015, Dr. Yue Wai Mun (CMO), a specialist in spine, joined the Company and was joined by Dr. Mohd in 2017. 

The Company currently have 5 senior and experienced orthopaedic medical specialist operating at 4 clinics under "The Orthopaedic Center" brand across Singapore and aims to be a one-stop integrated healthcare provider for all musculoskeletal-related medical care and post-surgery rehabilitation related services such as physiotherapy and pain management. 

Investment Highlights (per the prospectus)

Financial Highlights

According to the prospectus, the Company would have made an adjusted profit after tax ("PAT") of S$4.5m in FY2016 and FY2017 if the Service Agreements were in place. The adjusted PAT is is similar to the pro-forma figures which indicate the likely profitability of the Company going forward. The docs will then be compensated via the dividends declared and distributed. While the doctors are taking a "pay cut", I think this arrangement work out nicely as it aligns the interest of the founders with shareholders and also help them gain some tax arbitrage as the corporate tax rate is lower than the highest personal income tax rate by 2%.  

Looking at the post-placement adjusted EPS of 1.54 Singapore cents, the Company is being valued at 14.9x PER for FY2017. According to the prospectus (page 31) the NAV per share is around 3.64 cents. 

The Company intends to pay no less than 50% of its profits attributable to shareholders as dividends. Assuming EPS remained at 1.54 Singapore cents, the dividend to be paid out will be 0.77 Singapore cents, translating into a yield of 3.35% (0.77 cents divided by 23 cents). That is quite a decent yield.

Business Strategies and Future Plans

The Company believes that the listing will enhance its public image and enable it to raise funds for future expansion.

Use of Proceeds

The Company intends to use the proceeds raised for business expansion.


Looking at the table above, the Company will be tightly controlled with 81.3% of the shares held by the 4 founders in equal proportion. The public will own about 16.2% of the Company.

What I like about the Company
  • One-stop medical centre specialising in orthopaedic, sports and trauma services - I like the healthcare sector where there is always demand for good quality services. If the Company is able to provide a one-stop and comprehensive set of services ranging from surgery to physio therapy treatment post the surgery, this will enable the Company to stand out among its competitors
  • Strong alignment of interest - The interest of Dr Chin Pak LIn, Dr Yue Wai Mun, Dr David Su and Dr Tan Chyn Hong, through AHS Investments Holdings Pte. Ltd., have been voluntary locked up for 5 years (steps down gradually over time). This is to signal to investors the interests are aligned for the long term. (See page 58 of prospectus)
  • Dividend paying - The Company intends to pay no less than 50% of its net profits attributable to shareholders for FY 2018 and FY2019. This translate into a decent yield of about 3.35%
  • Decent valuation - While the healthcare sector is generally trading at rich valuation of at least 20x PE, the IPO is valued at 15x PE (see peer comparison on fair value below)
  • Ageing demographics and rising income levels will help spur demand for quality healthcare care services and the Company is well positioned to capture this demand
  • Ability to provide in-depth subspecialised services and complex revision surgery- According to the prospectus, there are only 2 ROBODOC system in Singapore and one of them is being utilised by the CEO, Dr. Chin Pak Lin. The ability to provide advanced healthcare services is important

Some of my concerns
  • Key man risk - Given the asset light strategy, the Company is heavily dependent on its key medical specialists as well as skilled healthcare professionals. Given the founders are also doctors of the various clinics, the ability to work together towards a common goal is mission critical for the Company. The key man risk will be the doctors falling out with one another
  • Competition - The Company faces competition from both public and other private practices. While there is competition, the Company has "proven" that it can generate good profits over the last 3 years
  • Small revenue base - The company is still young with a small revenue base 
Fair Value (Peer Analysis)

Looking at the comparables listed on SGX, i think the closest peers will be HC Surgical Specialists, Singapore O&G and ISEC Healthcare in terms of market cap and profitability. These counters have also performed well post listing.

HC Surgical is currently up 148% since launch. My write up can be found here.
Singapore O&G has its ups and downs but is still up 292%. My write up can be found here.
ISEC Healthcare debut well but the share price has since dropped from its high. It is now back to its IPO price. My write up is here.

Assuming the Company trades at its peers valuation of between 20-24x and without taking into account any potential growth, the Company's fair value range is between 30 cents to 37 cents.

Given the small float, tightly controlled placement and discount to peers, i believe this Company will perform at launch (barring any trade wars or poor sentiments). This is a 3 chilli ratings for me for both short and long term. The only "grievance" for me is there is no shares for the retail investors.

Do note that i am vested from the placement tranche. 

Polling Time if you are interested ... here

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