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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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