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Thursday, 29 March 2018

Sassuer REIT - Balloting Results

Sasseur REIT announced that it's public offering was 3.74x subscribed and that DBS over-allotted 32m shares for price stabilization.

The balloting table is below, investors who applied will definitely be awareds some shares  
Other interested parties placees are below:

Happy Sasseuring! 

Saturday, 24 March 2018

Sasseur REIT

η ‚δΉ‹θˆΉ Sasseur REIT ("Sasseur" or the "REIT") touted itself as the first outlet mall REIT to be listed in Asia. Sassuer is offering 266.562,500 units for the IPO at $0.80 per unit. The public offering comprises 13.75m units with the balance being distributed via an international placement. Investors can use CPF to invest in the units and the stablisation manager can over-allot up to 32m units for post-market stablisation purpose.

The IPO will close this coming Monday on 26 March 2018 at 12pm.

Sponsor Group

The Sponsor is a leading privately-owned outlet mall operator in China and currently manages and operates 9 outlet malls. The Sponsor was founded in 1989 by Mr. Xu Rongcan and has two strategic investors - L Catterton Asia and Pingan Real Estate. 

Sponsor's "Unique" Strategy

The Sponsor adopts a super outlet strategy which integrates destination shopping with other lifestyle and interest options such as sports, children etc to provide a one-stop experience as shown below. 

Initial Portfolio

The REIT has an initial portfolio of 4 retail outlet malls located in the 2nd tier cities in China, namely Chongqing, Bishan, Hefei and Kunming (represented by the red dots below). There are also two right of first refusal ("ROFR") properties in Xian and Guiyang (represented by the orange dots) and 3 pipeline properties (represented by the blue dots).

The four initial portfolio are listed below:

From the Property Sector Analysis (page 209 onwards), Chongqing would be the most established and profitable outlet among the 4 properties. It contributed 71% of the income while it only constitute 36% of the valuation. 

The Hefei and Kunming properties will be the "most expensive" as they are relatively "young", accounted 53% of the value and contributed only 20% of the income for now. 

According to the IPO factsheet from UOBKH, the IPO price is $0.80 and the NAV per unit is around $0.78. Thus the price to book ratio is around 1.03x.


Sasseur is promising 7.5% for the forecast period 2018 and 7.8% for Projection Year 2019. Investors have to know that the "enhancement" is only valid for the first period. It may not be able to meet the 7.8% target in 2019 if the rental income renewal does not meet its expectation. he average WALE is presented below for your information. 

The first distribution will be made on or before 30 Sep 2018 and will be on a semi-annual basis thereafter.

I understand that demand during the book building was reasonable (meaning within expectation but not exactly hot) and the promised yield was originally set at 7%, but eventually the Sponsor moved it to 7.5% after the initial book building. 

Shareholders and Cornerstone Investors

Cornerstone investors subscribed for 228,437,500 units (separate from this offering) and will own 19.4% of the Company. Some known names in the cornerstone investors include, and CKK Holdings (owner of Charles & Keith group). I quite like the list of cornerstone investors.

Side note of national pride πŸ˜Ž - Charles & Keith is our local brand (two brothers) and grew from one small store in Singapore to more than 500 stores globally. They also owned the PEDRO brand with 105 stores in the Asia Pacific. 

The Sponsor continues to hold at least 50% of the REIT, showing some alignment of interest. The public investors will hold 25.3 % in the REIT.

Financial Forecast

Use of proceeds

The proceeds from the IPO is mainly to cash out the sponsor and extinguish some of the debt.

What i like about the REIT
  • Growth Potential - According to the research provided in the prospectus, the outlet mall industry is expected to grow rapidly due to growing middle class population and their preference for high quality brands and luxury goods at reasonable price. The outlet sector is expected to become the world's largest market by 2030
  • Two international valuers were used to value the properties - Savills Real Estate Valuation and Jones Lang LaSalle were the appointed independent valuers.
  • Early first distribution - the first distribution will be made on or before 30 Sep 2018 for income generated from Listing Date to 30 June 2018. At least IPO investors don't have to wait for so long before getting their first payout!
  • Good cornerstone investors and high Sponsor shareholding - They have attracted a good list of cornerstone investors. I also like the fact that Sponsor will continue to hold more than 50% in the REIT, showing there is at least, some alignment of interest. 
  • Experienced Management Team  - The CEO Anthony Ang, CFO Richard Tan used to work at ARA Group and CIO Ken Chew was from Mapletree and Capitamalls Asia.
  • Pipeline of properties - There are a few properties in the pipeline which can be injected into the REIT once investors are more familiar with the Sponsor and the REIT

Some of my concerns
  • Expiry of Land Use Rights  - In China, there is no such concept as "freehold" land. The 4 initial properties will expire between 2047 to 2054. I am still not sure how this will pan out in China even though many local Chinese believe that the government will just "extend" it when the lease expire

  • Changing shopping experience - While the Chinese has a strong preference for branded goods (you can see them with large suitcases in outlet malls in USA and Japan), the online sales channel will always be a threat to physical stores. This may have an impact on traffic flow and sales volume at the outlet malls in future. The prospectus actually spent a few pages trying to "highlight" the differences between outlet malls, department stores, shopping malls and online platform (page 7 and 27), indicating that this probably one of investor's concerns

  • Yield enhancement - I usually don't like artificially enhanced assets and this is kept to a minimal. Having said that, if the enhancement is to provide stability, then one year is definitely too short. If the Sponsor is confident of achieving 7.8% (from 6.1%) in 2019, then the enhancement at 7.5% should stay for at least a while longer (at a lower rate).  
  • Single property risk - The Chongqing outlet mall is the "crown jewel" in the first 4 portfolio and generated about 2/3 of the income for the REIT. The other outlets are very new and the Sponsor has yet to "stablise" these properties. If anything is to happen in Chongqing (say earthquake), then the REIT will be severely impacted. According to the prospectus, Beijing Capital Land will be opening a new outlet in Banan District in Chongqing and can be considered as its competitor when completed in Oct 2018

  • Short WALE  - The short weighted average lease expiry of 1.2 years has been touted at a "positive" in the prospectus πŸ™„ which i find it to be ridiculous. I rather have a longer WALE and be assured of the rental income then keep having shops "churn" at the outlet mall.
  • Non compliance use of terms of Land Use Rights - This is so typically of Chinese companies... it has been disclosed the Hefei PRC and Kunming PRC outlets may be expose to potential liabilities and forfeiture due to their non-compliance with the terms of the Land Use Right
  • Rising interest rate environment - The US interest rate environment has been rising and this will result in a premium being placed on REITs (in general) as the financing cost will go up as well. Investors will have to evaluate if the REIT is able to perform under this environment 
Peer Comparison

Let's examine if there are "peers" listed here and what they are trading at based on data sourced here and here.

If you want to invest in the outlet mall sector in China, this is probably the one on SGX. While the yield of 7.5% is attractive, the price-to-book and gearing is also higher than average. Assuming it trades between the price to book and dividend yield of BHG REIT, then the trading range is between 75 cents to 84 cents.

Assuming i like the retail exposure in China, I would prefer Sassuer over BHG Retail. My write up on  BHG Retail REIT is here.

My Chilli Ratings

You should know my usual ratings for REITs. It is a long term investment and for income, hence it is not meant for flipping. It's a one chilli for me - Apply only if you like the yield and the sector.  

Straw Poll

You can participate in the straw polling here

Ayondo Ltd - Balloting Results

Ayondo Ltd announced that its public tranche was 4.5x subscribed and on an overall basis, the IPO was 1.3x subscribed.

The public allotment results is as follows:

You can see that 36% of the public offering went to investors who applied for 100,000 to 499,900 shares and they will 32% chance of getting 80,000 shares.

In terms of institutional investors, i am surprised to see Pheim Asset Management applying for 30.8% of the public offering, effectively taking up a substantial part of the IPO. You can read about the "investment philosophy" here

255 readers participated in my online poll and the majority of it (47%) indicated that they will be giving Ayondo a miss and that only 16% will apply.

The exploding trade war between US and China over the course of last week and the sell down in the tech sector in US on Friday night probably meant that Ayondo has "chosen" the worst time to debut on the SGX on Monday . . .

Sunday, 18 March 2018

Ayondo Limited

Ayondo Limited (“Ayondo” or the "Company" or the “Group”) is offering 80.77m shared for a listing on Catalist, of which 8.9m shares will be for the public and the balance 71.9m shares via placement. The IPO price is 26 cents and that translate into a market cap of $130.7 million. The offer will close on 22 March at 12pm and starts trading on 26 March 2018 at 9am.

Principle Business 

Ayondo is the first “pure play” Fintech Company to be listed on SGX and considers itself to be one of the Fintech pioneers in Europe that tried to combine trading and investment with elements of social media. "ayondo at a glance" below presents the current value proposition for investors.

Ayondo has subsidiaries in UK, Germany with offices in Singapore, Spain and Switzerland, offering innovative trading and investment solutions for retail and institutional customers.

The services included provided by ayondo include:

• Social Trading
• Self-directed trading
• Casual Trading

Social Trading 

Social trading basically allows ordinary investors to mimic the trades of top traders via the “WeTrade” platform. Top performing traders will be incentivized to build up its followers as they will be paid when followers follow the trades.

According to the prospectus, social trading represents a fast-growing innovation, with an average growth rate of 213%.

Self-directed Trading

The Group also offers CFD and spread bet trading over a wide range of markets, including Forex, Commodities, Treasuries, Cryptocurrencies and Shares.

Casual Trading

This has more of a social element - educating and empowering customers and prospects.

The revenue breakdown by the customer profile is presented below.

Financial Highlights

While revenue has been growing strongly, it started from a low base and in absolute numbers, it is still low and has not reached a level of scale yet. While the gross margin is high, the operating expenses are high too and that results in losses over the last 3 years

It is interesting that the revenue for 9M2017 has fallen despite an increase in active clients and client transactions. According to an article in Singapore Edge, the CEO Lempka attributed the decline in revenue to "almost no volatility in the market in 2017" where top traders traded less than before while the "first two months of 2018 was a complete different picture".

Potential Prospects

The Company listed its prospects in the prospectus as above. You should evaluate for yourself whether you agree or "buy into" the theory to decide if you should invest or trade in this IPO.

Use of proceeds

The Company is raising funds for the above item as well as using $8.5m to repay loans. The loans included interest on the convertible bonds as well as shareholder loans. Why aren't the shareholder's loan converted to shares for the IPO but repaid through the proceeds instead?

What I like about the Company

  • Directors are supporting the IPO - All the 3 independent directors subscribed for the shares ranging from 100,000 (Lam Shiao Ning), 150,000 (Foong Daw Ching) to 750,000 (Chan Heng Toong)
  • Provides disruption to the fund management industry and incentivise traders to share their trades and set up their track record in a transparent manner - While these traders can potentially be "paper trading", I have always wanted to call "bluff" to many forummers who "boast" about their track record and profitability. The ability to let traders share their trades, establish a real-time track record while earning some fees and not worry about the "middle and back office" functions is great. It allows traders to continue focusing on what they are good at. There is even a "career path" for top traders on this platform
  • Ability to attract more fintech to list here - SGX has no hinterland and is probably struggling to attract companies to list here. The ability to attract these fintech companies is good for the market development and ayondo is a good start but may come at a price
  • Award winning platform -  The Company has garnered some 19 awards but i have not done any due diligence on how "prestigious" these awards are

Some of my concerns 
  • Social trading while innovative is threading into regulated arena - The ability of being able to "mimic" trades of top traders under the guise of social trading may cause the traders to be construed as "engaging in fund management activities" in Singapore. This is a "no-no" in Singapore unless you are properly licensed. Similar in other countries, such activities can be highly regulated and the risk of the Company flouting the rules can be high. Assuming you have a "top" trader that caused retail investors to lose a lot of money, that will certainly invite unwanted regulators' attention. Similar if a trader has too many followers and the calls he made can result in moving the markets, the regulators will also be very concerned as well
  • Brokerage business is highly competitive and cut throat  - In many banks, brokerage houses is a "money losing business" due to the advancement of technology and falling margins for brokerage fees. For example DBS Bank has been subsidising DBS Vickers for quite a while now, and traditional brokerage houses such as Kim Eng, CIMB, Lim and Tan etc has been consolidating and combing their operations as a result of disruptions by other players such as Saxo Bank. This is a trend not just locally but globally as well. It seems quite challenging for me to see how ayono can 'cream' any more profits from an industry that is still reeling from disruptions by technology
  • Company is still loss making with no visible timing on profitability - While you can argue that ayondo is now investing for growth and scale, the fact is that ayondo is still losing millions in CHF (Swiss Francs) for FY2015, FY2016 and likely FY2017. Personally i am clueless what is the "break-even" point going forward and the "stickiness" of the platform to its users. Is it based on the number of users on its platform or is it the opening up of new markets? According to the prospectus, the Company is expected to remain unprofitable and may require additional financing in future for expansion
  • Some shareholders loans not converted to shares - Some of the shareholders loans are being repaid by the IPO proceeds. If these shareholders have "confidence" in the Company, they should be converting the loans and interest into IPO shares instead of cash repayment (see page 63)          
  • Shareholders are too broadly held - The shares are held in many hands of pre-ipo investors and private funds such as Luminor. These investors are financial investors and not there for the long term. The listing provides an avenue of exit for their investments once the lock-up is over. The average cost per share of these investors are around 17 Singapore cents, versus the 26 Singapore cents IPO price 
  • Competitors are plenty in the different segments -  There are many competitors in the social trading space such as eToro and Zulutrade (refer to list on page 175) and self-directed trading such as CMC Markets, IG, Saxo Bank. I am not very sure how scalable a social trading platform will be in the different markets
  • Management is very well paid for a start-up  - Thomas, Robert have been drawing compensation between $250,001 to $500,000 per annum for the last 3 years and Edward and Rick will be in the same band for FY2017. Pretty high compensation payroll for a start up, not to mention the options to be granted (see page 206 and 207 of the prospectus). Robert's annual salary can also move up if revenue (not profitability) hits CHF 65m for year ending 31 Dec 2018 and CHF 130m for year ending 31 Dec 2019 (page 217), not to mention profit-sharing if the company is profitable. I have to say that these are "stretched targets" and it will definitely be something if the Company can achieve these revenue targets in the next few years


I have no idea how to value this loss making company trading a huge premium to NAV. This is definitely not a "value-investing" buy.  You can trade it for all you want but it is too challenging or early to say it will become a viable business. As it is, the Company is still cash flow negative. The Company will continue to burn cash for marketing and attracting top traders and users to its platform as it scale up its business.

Chilli Ratings

Coming to the most exciting part - My chilling ratings will be of interest to you, cos i hope you are not confused at the end of it. I am confused myself πŸ˜‚

Fundamentally, it is difficult to give it any chilli for reasons i have outlined above until we see the Company gains traction in either revenue or subscriber numbers. My feedback from the ground (i.e. people in the know) is mixed. Investors like the story but have some difficulty valuing the company. So long term wise, it is a zero chilli for me, invest or buy only if you like the prospects of the Company.

Short term wise for the IPO punting, it is a 2 chilli rating for me. One chili in support for the first fintech listing and for giving retail investors a chance to subscribe plus one additional chilli because the book runner behind the placement has a good track record. I have always gave him a 2 or 3 chilli ratings in the past and he always delivered. πŸ˜…

I am not vested from placement but may try some for the ATM just for fun... happy ayondoing! Do remember its a hit and run...

Strawpoll - Are you going to subscribe for Ayondo IPO ?

You can participate in the polling here

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