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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

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?


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, 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!

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