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Tuesday, 7 August 2018

Synagie Corporated Ltd - Balloting Results

Synagie Corporation Ltd ("Synagie" or the "Company") announced that its public offer was 4.3x subscribed.

The balloting table is below for your reference. Investors who applied for 100,000 to 499,999 shares was allocated the bulk of the IPO.


I have to admit that I am surprised to see Nikko Asset Management being named as one of the anchor investors in the placement tranche. Not sure which of their funds has bought into Synagie. 

Commenting on the response from investors, Mr Clement Lee, Chief Executive Officer & Executive Director of Synagie Corporation said: "We wish to thank our investors for their support and for believing in our business and its growth potential. Being listed on SGX provides us with a new platform that will give us better access to the capital markets and help enhance our position as a leading e-commerce enabler in the region."

 Good luck to those who have applied!

Sunday, 5 August 2018

Nikko AM SGD Investment Grade Corporate Bond ETF


I don't really cover ETFs but as requested, here you go . . . 

New Issuance

Nikko Asset Management launched a SGD investment grade corporate bond ETF for retail investors. The offer closes on Aug 17, 2018. Trading will start on 27 Aug 2018.

Benchmark

During the offering period, the minimum investment is 50,000 units and the ETF will track the iBoxx SGD Non-Sovereign Large Cap Investment Grade Index, a proprietary index developed for Nikko AM. 

Market Making

Flow Traders Asia and Philips Securities will be making market for the ETF post listing and have to make market 85% of the time with both bid-ask trades. While the spread can be as wide as 2%, it is expected to be tighter at around 30-50 bps (my guess).  

Great for retail investors - Diversification

The ETF is great for retail investors, as these investment grade bonds are, ironically, available only to accredited investors at a minimum clip size of $250,000. With the ETF, you can achieve diversification with as low as $1,000. In addition, there is low correlated with Singapore equities, meaning that investors in ETF will achieve some level of diversification. 


Being denominated in SGD, the Fund poses no currency risk for local investors.

 High quality bonds

The bonds comprise a large allocation to statutory boards such as HDB and LTA, and 
corporate bonds issued by blue chip companies, such as DBS, UOB, Singapore Airlines, Keppel Corp and Capitaland. The bonds itself must have a minimum issuance size of $300m to ensure there is sufficient liquidity.



Expected Yield

The expected yield of the ETF at issuance is around 3.22% (gross) and with expense ratio of 0.3% per year, the net yield is around 2.92%. The expenses will be capped at 0.3% by Nikko AM.



Fund Details



What I like about the Bond ETF
  • Affordable - Finally we are able to assess a portfolio of investment grade bonds rated from BBB- to AAA+ for as low as $100! You can buy the ETF like stocks through the exchange
  • Diversification into a portfolio of investment grade bonds. You are not exposed to any single issuer risk. 
  • Risk adjusted returns - If you believe the ratings can be relied upon, the ETF offers good risk-adjusted returns of 2.92% net
  • Capping of expenses - The bond needs a minimum size to operate efficiently. The good thing is that Nikko AM has capped the expense ratio at 0.3%, hopping that it will attract a decent fund size
Some of my concerns
  • Annual dividend payout - The dividend is only paid out only annually. Unlike bonds traded through the OTC market, where you are entitled to the interest (borne by the buyer) up to the date of divestment, the ETF or retail bonds has no such concept. Meaning that if you have held the ETF for 200 days and decide that you need to sell for liquidity, you will need to "forfeit" all the accrued interest as the interest is usually not reflected in the bid-ask spread
  • Increasing interest rate environment means that the ETF will be subject to pricing pressures whenever there is a rate hike. This is because the ETF will be fully invested and can only reinvest at a higher rate when the bonds mature. If the manager decide to switch out of the existing bonds prematurely, then it may be subject to market risk too
  • Liquidity risk - Given that this is a permanent ETF, there will be no redemption of capital.  In other words, Manager has to stay invested at all times as it tracks an index and investors can only sell to market makers or through the market if there is sufficient liquidity. Investors will have to bear that in mind if they want to subscribe for the ETFs
What are the alternatives for retail investors?

The sad truth is .... limited!  Hyflux Perps was sold to retail investors because they couldn't sell them to institutions. Hyflux Perps wouldn't get an investment grade in any case. The current batch of retail bonds are issued by property firms, and they would also fail the rating tests. 

Alternative 1 - One of the alternatives for retail investors is the Astrea IV Class A-1 Bond. You can see my write-up here.  
  • Asset-backed securities (Not corporate bonds)
  • 5 years maturity, scheduled call date on 14 June 2023
  • Rated "A" by both S&P and Fitch
  • Pays semi-annual coupon every June and December
  • Exposure to 36 PE Funds (592 companies)
  • SGD denominated
  • Interest rate at launch 4.35%
The price since my "3 chilli ratings" has gone up from $1 to $1.045 (4.5% higher) but the current net yield is still trading at a better projected yield than 2.92% net. 


Alternative 2 - Singapore Saving Bonds. 

You can refer to the website here. The benefits for SSB are:
  • AAA rated
  • Pays coupon every 6 months
  • Average yield of 2.44% if you hold for 10 years (2.17% if you hold for 5 years)
  • No frictional costs and gets back full principal on demand (the following month)  


My Chilli Ratings

I am going to give this ETF a "one chilli" ratings - Buy only if you like it. (*note that bond and ETF chilli rating has no pricing expectation as prices are not expected to "pop") 

You have to decide for yourself if you like the key features and whether you have any liquidity needs in the short term. This product will be suitable for conservative investors who have spare cash (already maxed out on SSB) and is happy to earn a yield more than the SSB and fixed deposits, but also aware that there will be frictional costs if they want to exit. 

Alternatively, you can consider the Astrea IV Class A-1 Bonds if you have no need for the cash until 14 June 2023. At least you can enjoy higher interest rates, get paid twice a year and be assured of being repaid the full principal amount at maturity. The only downside is that the price has gone up by 4.5% and there is no liquidity to buy ... 

Happy ETFing

Polling Time

You can do the poll here.


Synagie Corporation Ltd


Synagie Corporation Ltd ("Synagie" or the "Company") is offering 43m shares at $0.27 each, whereby 39.2m will be via placement and 3.8m shares through the public offer. The IPO will close on 6 Aug 2018 at 12pm and starts trading on 8 Aug 2018. The market cap at the IPO price is $70.7m

Principal Business

According to the prospectus, the Company is Singapore's fastest growing e-commerce start up and one of the fastest in Southeast Asia.


Synagie provides e-commerce solutions in the Body, Beauty and Baby "BBB" Sector and help brand partners execute their E-commerce strategies though cloud-based platform that leverages on technology such as Cloud Computing, Big Data Analytics and Artificial Intelligence. There are 3 main business lines:


For the first time, the business model for this e-commerce company is not difficult to understand. You can see how the 3 main businesses "integrate" with Synagie in the picture below.



Investment Highlights


The key investment highlights are presented above. 

Financial Highlights


The pro-forma revenue is $12.2m with loss of $2.3m. My own gut feel is that the Company will need at least 2 years to break even.

What I like about the Company
  • Large untapped market potential - There is a large untapped market potential in South East Asia for e-commerce
  • Scalable business model - The business model is highly scalable as all brand holders (especially those with offline stores) would like to expand the model to online without cannibalizing the offline stores  
  • Ability to attract good brand partners - The Company seemed to be able to attract branded BBB products owners to collaborate. My key concern is whether the Company can expand beyond BBB products into higher margin "tech" products where Insurtech for e-commerce is more common and profitable
  • Interesting shareholders - Despite the long list of pre-ipo investors, there are some familiar faces such as Centurion Private Equity (Loh and Han) and Alan Wang. Let's see if they are able to help support the company post listing. 
  • Big 4 auditor - Deloitte is the auditor for the Company and it is good to see they have invested in a good set of auditors
Some of my concerns
  • Execution risk - The key to the Company is how they execute their strategies beyond the inflection point from Singapore into the region 
  • Long list of Pre-IPO investors - The Company has been financing its operations from outside investors. The pre-ipo investors (as shown on page 76 of the propsectus) is a long list of around 135.3m shares and owns 51.7% of the Company. There might be selling pressure when the moratorium is over after 6 and 12 months
  • Company still loss-making - Despite the revenue growth and acquiring a profitable Insurtech business, Synagie is sitll loss making. Investor will have to be patient as the Company grow its revenue at the expense of profitability
  • Staff costs is high - The 2 key founders, Clement and Olive are quite well paid for a start-up company (They are both in Band B). Contrast the staff cost of $2m (page 98) against its gross revenue of $8m (page 95) means that the Company would need to accelerate its revenue even faster to break even
My Comments

I have previously shared with you that i don't really know how to rate IT companies. hahaha. I rated one of its competitors, Y Ventures, here with a one chilli. It debut well on the first day, then tanked for a few weeks to a low of 15c before it start moving up. One year on, it is >100% above its IPO price.


The morale of my story - the chilli ratings can be right in the near term and very wrong in the long term (or it can be right all the way πŸ˜†). So always do your own homework. In any case, Y ventures was profitable at the point of listing but Synagie is not.

Chilli Ratings

On one hand, i feel that the local investors (including myself) do not know how to appreciate "loss-making internet based companies" and the poor market sentiments is not helping. On the other hand, i feel that the Company is well positioned to tap the e-commerce market space but investors will have to be patient.

Similar to Y ventures, I will give it a one chilli for the debut (probably zero if i wasn't vested πŸ˜…) and whether it can become another Y ventures will be the story for the future.

Happy Synaging!

Polling time

You can participate in the poll here.


Saturday, 21 July 2018

DLF Holdings Limited



DLF Holdings Limited ("DLF" or the "Company") is offering 18.5m Placement Shares at Singapore 23 cents each for the IPO. There is no public tranche, hence i will not spend too much time and effort on it. The IPO will close on 23 July 2018 at 12pm. Based on the IPO price, the market cap is $27.9m

Principal Business

The Company is a Singapore-based mechanical & electrical ("M&E") engineering services and solutions provider. The core business is in the provision of project management services and turnkey contracting services. 


Financial Highlights



According to the prospectus, the Company has an order book of around $6.4m which will translate into revenues for the next 1 to 3 years.



The EPS based on the post placement shares is 2.77 cents. That translates into a historical PER of 8.3x. Assuming the service agreements are in place, that PER will increase from 8.3x to 10.3x. The NTA per share is 2.78 Singapore cents.

Competitive Strengths

According to the prospectus, the strengths are:
  • Ability to undertake Turnkey Contracting Services for the hospitality and commercial industry
  • Provide value engineering and ensure seamless integration of M&E systems
  • Established track record and reputation
  • Experienced and dedicated management team
  • Network of customers in hospitality industry
Shareholders


Post the listing, the Company continued to be tightly controlled by Manfred Fan and Wong Ming Kwong with a combined stake of 79.3%.

What i like about the Company

I like the fact that the Company is profitable and the revenue and profits are trending up. The Company made $3.3m last year, unlike some of the loss companies trying to list on Catalist. While the IPO sentiments are currently weak, the issuance size is really small, hence if the placement is controlled well, it should debut well given the small float. 

Some of my concerns

The Company is operating in a competitive landscape where there are many M&E companies in Singapore and the space can be highly competitive. I am not sure about the sustainability of earnings and it ihas not promised to pay out dividends anyway. The two founders made between $250,000 to $500,000 each year. The valuation at 10.3x PER is fair but not "value-for-money". 

Chilli Ratings

I would probably have given it a 1 chilli rating for debut and give it a miss as it is not a stock that i will hold for the longer term.

Tuesday, 17 July 2018

Koufu Group Limited - Balloting Results


Koufu Group Limited ("Koufu" or the "Group") announced that its IPO received strong support from institutions, high net worth and retail investors. The public offer was 17x subscribed. 

Mr Pang Lim (庞琳), Koufu's Executive Chairman and Chief Executive Officer, said, "This
is a strong vote of confidence for our Group and a recognition of our established track
record and growth plans. We would like to take this opportunity to thank our investors for
their support, as we strive to bring the business to new heights and continue to keep to
our core values: "Better Food", "Better People" and "Better Life" as we grow in Singapore
and overseas."

Koufu also announced that it received strong indications of interest for the Placement Shares where the placement tranche was around 6.5x covered. I would view this as a strong order book. The over-allotment option of 18m shares were also exercised, meaning that DBS will step in to stablise the market where necessary. 

The balloting table for the public offering is below. If you apply for 100,000 shares, you will have a 50% chance of getting 10,000 shares.


It is also good to see that the 3 independent directors, siblings and kids of the founders also put in substantial placement orders.

Dymon Asia Equity Master Fund, a hedge fund, also subscribed for 2.6m shares in the placement tranche. 

My Views

It is a good set of placement and IPO results that showed strong support from the board and management's relatives. With the over-allotment being exercised as well, i believe the debut will be decent. 

Happy Koufuing!

Saturday, 14 July 2018

Koufu Group Limited



Koufu Group Limited ("Koufu" or the "Group") is offering 97,008,000 shares in the IPO at $0.63 per share. 90.675m shares will be through the placement with the remaining 6.333m via the Public Offer. There is an over-allotment option. The offer will close on 16 July 2018 at 12pm and starts trading at 9am on 18 July 2018.

Principal Business
Koufu is one of the largest and most established operators and managers of food courts and coffee shops in Singapore, with a history dating back to 2002 with one coffee shop and two food courts. Fast forward to 2018, it has outlets all over Singapore.



口福 means it's one good fortune to feast on good food. The business philosophy has also been to integrate modern management discipline, retaining traditional coffee shop culture and providing patrons value for money dining options in a comfortable environment.

The Group manages 48 food courts, 1 hawker centre, 14 coffee shops, 1 commercial mall, 83 F&B stalls primarily in Singapore but has also established a small presence in Macau.


I like the way the Group uses different brands to differentiate itself. For example, the Koufu food courts are located in the heartlands or educational institutes whereas it uses a more premium brand at Marina Bay Sands or commercial malls.


Financial Highlights


The revenue for FY2017 is around $217m and the profit after tax is $26.8m. The sales and profits has grown marginally from FY2016 to FY2017. It will be interesting to see if the trajectory will improve in the new few years. The financial statements are audited by KPMG.



Based on the adjusted EPS of 4.83 cents, the historical PER is around 13x. Assuming there is no growth but profits remained the same, the dividend per share will be Singapore 2.415 cents. This imply the yield is around 3.83%.

If you look at the pro-forma cashflow statements, you will notice that in 2017, the owners sold the assets and financial assets worth $75.63m and then distributed $97.3m of dividends to themselves. This is consistent with the Kimly IPO, where they pursued an "asset light" strategy and continue owning the coffee shops.


Use of proceeds

The Group intends to use the proceeds for capital expenditure on its proposed integrated facility, refurbish and renovate new and existing F&B Outlets as well as expand its business. 


What I like about Koufu
  • Resilient business and cash flow generative - The business is highly cash flow generative and the value proposition provided by Koufu ensures its business will be resilient through economic cycles as evidenced by the Group surviving SARS and the GFC since its inception. People will eat in food courts in good times and bad, hence it is rather "recession-proof".
  • Ability to attract and retain quality stall operators - The Group was able to attract quality operators and 29 of them have been with the Group for at least 5 years and they operate more than 130 F&B stalls across its network. The good relationship is critical for the Group to expand locally and overseas
  • Experienced management team with proven track record - The husband and wife team have proven themselves over the years to be able to navigate the F&B industry. it is also good to see that they are not paying themselves rich salaries post the IPO. They have taken a drastic pay cut but this would be "offset" by Incentive Bonus and dividends. 
  • Dividend paying mindset - The Group intends to recommend and distribute at least 50% of its net profits after tax generated in FY2018 and FY2019
  • Integrated facility to drive productivity and costs - The establishment of an integrated facility will help drive the next phase of growth, enhance productivity and operational efficiency, as well as increase profitability through central procurement, preparation and distribution of food products


Some of my concerns
  • Saturated and competitive local market - The revenue and profitability has been growing at a slower rate over the last 2 years. The Singapore market is probably quite saturated and highly competitive but it is good to see that the Group will continue to expand if suitable locations are found. Post IPO, the Group will open a food court in Sengkang Hospital and has plans to open two new Koufu food courts. The competitors are Food Junction, Food Republic, NTUC Foodfare in food courts, Broadway, Chang Cheng, Kim San Leng, Kimly, S-11 and Kopitiam in coffee shops. 
  • Overseas expansion unproven yet - While i am heartened to see that the Group has successfully gained a small foothold in Macau, the overseas expansion by local SMEs have never been smooth sailing. The Group wants to expand to PRC, Malaysia, Indonesia and Australia. Having said that, having a strong base in Singapore will allow it to experiment and grow overseas and they have successful done that in Macau. 
  • Dilution in pro forma NAV per share to new investors - The pro forma NAV is about 13 cents versus the IPO price of 63 cents. New investors will have a 79% dilution in pro forma NAV at listing. The price to book is around 4.9x
  • Owners are cashing out pre and post IPO - Looking at how the investment properties and other investments have declined over the last 3 years, the owners have been "reducing its investment properties" from its balance sheet from 2015 to 2017 and paying dividends to themselves. See page 84 and 85 of the prospectus. The justification is "the group does not intend to hold long-term lease hold interests of more than 30 years due to significant capital outlay arising from such long-term leaseholder properties. Seriously - cannot be more truthful than that ?! The real reason is to transfer the assets to themselves and pursue an "asset light strategy" similar to Kimly Holdings. They are also selling 45.845m vendor shares at this IPO with an over-allotment option 
  • Lack of strong cornerstone investors and weak market sentiments - The 3 cornerstone investors are primary family offices and hedge fund and collectively, will subscribe to 21m shares and own 3.8% of the Group. They are, however, not subjected to any lock-up. The weak local market sentiments are probably not helping as well. 
Peer Comparison



Koufu is actually a "pure-play" food court operators. The last listed food court operator, Food Junction, was privatised a few years back by Auric Pacific.

In terms of closest listed peers that operates food courts and/or coffee shops, it will be a mixture of Kimly and Breadtalk, which i have listed above. They are trading at rich valuations with an average of 36x PE and 4.6x Price to Book. My write up on Kimly is here.

Assuming Koufu trades at a more conservative 14-15x PE, the implied fair value will be 67 to 73 cents.

My chilli ratings
I like the "recession-proof" and cash flow generative food court business and it allow for economies of scale through a central kitchens. If the IPO was launched during good sentiments, I would have given it a 2 or 3 chilli rating but current market sentiments is weak due to the "trade war" and the prolonged market corrections. The World Cup is also drawing the gamblers away from the stock market. Hopefully with the end of World Cup this weekend, life will get back to normal.

I will give it a 1 chilli rating for the debut and a 1.5 chilli rating for the longer term due to its relatively “cheaper” valuation and dividend paying nature. Do note that I am vested.

Polling time
You can participate in the poll here

Thursday, 12 July 2018

Durians Ratings?

Advertorial

When i first decided on the ratings for my IPO blog, durians was definitely on my list of options.

Instead of having 3 Chilli Hot, i can have "3 Durians Pao-Jiak (sure eat)" ratings πŸ˜‹


But in the end, i choose Chilli as it has a sense of "hotness". 

When Jonah from a Durian Delivery start up contacted me regarding a potential "collaboration" in June, there was a sense of Deja Vu.... maybe it's time to rebrand the IPO ratings ?!  πŸ˜Ž so in my moment of weakness, i said yes...

Anyway, Jonah reached out recently when the season started and offered a discount for my readers. 
If you key in the quote "mripo" on their website www.duriandelivery.com.sg, you will get a 5% discount. In return, i got to try out some durians. hahaha


I tried the old tree MSW and the regular MSW (Mao Shan Wang) durians.....

Verdict - freshly delivered in sealed boxes and the moisture and texture is still intact when i opened it after one day.


Given the glut of supply, I didn't really compare prices, so you will have to analyse for yourself whether it is "value-for-money". 

Happy Pao-Jiaking...

Saturday, 7 July 2018

Happy 11th Anniversary


It's pretty tough coming up with this post during the World Cup πŸ˜‹, in any case, Mr. IPO is still monkeying around after all these years. If you want to read my anniversary posts, you can find them here.

Mr IPO's Fan Base



It is really heartening to see the facebook fans growing from its low base in July 2012 (when i first started) to a 6,866 today. The year on year growth rate is, however, coming down. It grew by 16% over the last 12 months (compared to 21% a year ago).


The majority of those who used the Facebook is between 25-44, seems like Facebook (or maybe it's just my blog) is losing the younger group! 

The IPO journey is getting tough!

While my fans base has been growing at a decent rate, the market for SGX is more challenging.  Without any hinterland and with the ease of assessing other markets through technology platforms, SGX is facing an uphill battle attracting both investors and aspiring IPO companies! Hope the next few years will get better for the equity markets.

I can imagine how challenging the 2H will be on the IPO markets with the trade wars and bearish market sentiments. The PropNex IPO was "saved" for the Issuer. If it was to launch its IPO a few days later, it may have to postpone the listing! 

IPO Chilli Ratings


The IPO ratings went through another upgrade in 2018, where i try to put in what i think the first day opening prices will be. 

You can read more about the Chilli ratings here.

Work and World Cup

Mr. IPO has just completed a gruesome 3 months (April to June) where he slogged like mad and putting in 18 hours day weeks.... he just wants to relax and nua and watch the world cup...  

He is rooting for the Rooster!! Maybe he should change his chilli ratings to the numbers of roosters.....


Happy World Cupping. Market will be opened only after 15 July 2018....


Sunday, 1 July 2018

Propnex Limited - Balloting Results

Propnex announced that its public tranche was 24.6x subscribed and combining both public and placement tranche, the offer was 2.2x subscribed.

The balloting table is below for your reference. You can see that the majority of the shares were allotted to those who applied between 100,000 to 499,900 shares and they have a 58.5% probability of receive 8,000 shares each.


Good luck to those who applied and got some share! :)

Happy propnexing!

Wednesday, 27 June 2018

PropNex Limited


PropNex Limited ("PropNex" or the "Group") is offering 42.5m shares of which, 40.375m will be for placement and 2.125m for the public. There will be 12.9m new shares and 29.6m vendor shares. The offer price is $0.65 per share. Based on the IPO price, the market cap will be S$240.5m. The offer will close on 28 June at 12pm. 

According to the prospectus, PropNex is the largest real estate agency in Singapore with 7,248 sales person and has a market share of more than 42% in both private and HDB resale market. 


Business

The core business segments include real estate brokerage, training, property management and real estate consultancy.


The Group currently has presence in Singapore, Indonesia and Malaysia with plans to expand into Vietnam in 2018.


Use of Proceeds

The IPO proceeds net of expenses will be around $38m and the use of proceeds is as follows: 


Financial Statements


I think there is a mistake here. The Group did not state the "Earnings Per Share" is in Singapore cents ? πŸ™„ It is still reflected under the S$ column. In any case, i will assume the Adjusted EPS is Singapore 4.4 cents

The Company has a blow out record year in FY2017 where the revenue was $361m and the profit for the year is around $18.9m. The adjusted EPS based on 370m shares is 4.4 Singapore cents. That translate into a PER of 14.77x 

Dividend Policy

The Group intends to pay dividend that is at least 50% of its announced net profit after tax to shareholders for FY 2018 and FY 2019.

Assuming an unchanged EPS of 4.40 Singapore cents, a payout rate of 50% will imply a dividend of 2.2 cents. That will translate into a yield of 3.34%

Shareholders


The key shareholders are Mohamed Ismail, Alan Lim and Kelvin Fong. Collectively, they will own ~71% post listing with Mr. Mohd Ismail as the key shareholder. You can see that the shares will be tightly controlled post listing 


What I like about the Group
  • Presence of Cornerstone Investors - The presence of several reputable cornerstone investors will help provide some comfort on the IPO valuation. They comprise of known names such as FIL, NTUC Income, Affin Hwang, Samsung Asset, Value Partners and Nikko Asset Management. I would consider the cornerstone investors in PropNex to be better than the list in APAC Realty IPO
  • Asset light and highly cashflow generative business - The agents generated the revenue which will then be paid out to them when the deal closes. There is low likelihood of  "bad debts" as the sale proceeds are regulated and deducted directly from  proceeds received by the seller 
  • Singapore property market is turning around - The local property market is turning the corner and if the volume can be sustained, the profitability of the Company can be assured
  • Dividend paying stock - The Company intends to distribute no less than 50% of its net profit after tax to shareholders for FY2018 and FY2019
Some of my concerns
  • Vendors are cashing out - The owners are cashing out and the vendors are P&N Holdings, Mr. Nizam Muddin Gafoor, Mr. Alan Lim and Mr. Kelvin Fong
  • High dependency on Singapore's property market - The bulk of the revenue is derived from Singapore. Any market downturn in the Singapore property market will have a material impact on the Group
  • Regulations - The local regulations are punitive to buyers of more than one properties and may introduce new measures if the property market becomes over-exuberant. On the flip side, if you hold the view that the government has already implemented all the punitive measures to penalise speculation, then the downside will be limited. Any lifting of curbing measures will be highly positive for the market
  • Massive poaching ? It has happened in the insurance sector where teams crossed over to another competitor, but so far, this has not happened yet. In addition, the industry has undergone severe consolidation where the smaller agencies have now been merged or "subdued" under the bigger agencies
  • Brokerage business is low margin business - The brokerage services while constitute 95% of the gross profit has a gross profit margin of 8.9%. There is little room for error if there are disruptions due to a "killer app" by other fintech companies (maybe Propertyguru?)
  • Weak sentiments - The current market is not conducive for IPO. Even the red hot APAC realty has already cooled down and is trading at more attractive valuations than PropNex's IPO valuation
Peers Valuation

The main listed comparison will be APAC Realty that owns the ERA franchise. My previous write up is here.

According to Capital IQ, APAC realty is expected to generate revenue of $451m in FY 2018 with a net profit of $30m and EPS of $0.08. It is trading at a PER of 10.48x. You can also assess the latest report by DBS Vickers here. According to the report, current valuation is attractive for APAC Realty at 9.5x forward PE.

The share price has moved up significantly before undergoing the current correction.



In this regard, APAC Realty at 9.5x PER seemed to offer a better value proposition than PropNex Limited. As such, PropNex valuation of 14.8x seemed a tad too rich. Investors might as well buy into APAC Realty if they want an exposure to the Singapore market. 

My Chilli Ratings

I will give it a one chilli rating. Buy if you really want to. 

Reasons for not participating in this IPO will be the small public tranche, weak IPO sentiments and relatively better valuation in APAC Realty for investors who are keen to seek exposure to the Singapore property market.

Polling Time

You can also take the poll here.


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