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IPO Chilli Ratings

IPO Chilli Ratings
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Food Innovators Holding Limited

Food Innovators Holdings Limited ("FIH" or the "Company") is offering 14m shares at $0.22 each, for which 13m shares will be through placement and the remaining 1m shares via a Public Offer. The IPO will close on 14 Nov at 12 noon and starts trading on 16 Oct 9am.  FIH has two business models - the first is to be a master lease and sublease the space to other tenants and the second is to operate and manage restaurants.  The Company currently has 12 restaurants in Japan, 10 in Singapore and 4 in Malaysia. The market cap based on the IPO price is around $24.9m. Financial Highlights FIH's revenue grew from $37.8m in FY2022 to $43.8m in FY2024. It is quite funny to see that being a master land lease holder has a higher margin than operating the restaurants, once again illustrating the point that it is better to be a landlord to shake leg and collect rent. According to the prospectus, the PER is around 19x. The Company intends to pay 20% of its net profit after tax a
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GVT Venture Technology Limited








GVT Venture Technology Limited ("GVT" or the "Company") is the first IPO to be offered in 2019. The offering details are as follows:

IPO price : $0.275 each
Placement shares:  42.118m shares
Public offer: 800,000 shares
IPO closing date: 21 Jan 2019, 12pm
Listing date: 23 Jan 2019, 9am
Market Cap: $64.4m

Principal Business

The Company was established in 2012 with a strong focus in providing manufacturing and services solutions to the semi-conductor, analytical life sciences and electronics industries. GVT has facilities in Singapore, Malaysia (Penang) and PRC (Suzhou) to some of the largest OEMs in these industries (this is somewhat similar to sub-contractor to the main contractor role).


Financial Highlights



As in most IPOs, the Company demonstrated strong sales trajectory and profitability but do note that this is not very representative as the Company started from a very low base. Regardless, it is good to see that the Company is actually profitable and the first half of 2018 continued to show good traction.


Assuming the EPS (fully diluted basis) is around 1.89 cents, based on the IPO price of 27.5 cents, it translate into a historical PER of around 14.5x. Assuming the Company continues with its growth trajectory which is evidenced by HY2018 over HY2017 of 40%, the full year profit is potentially, 1.64 cents x 1.40 = 2.296 Singapore cents. That translate into a forward PER of around 12x.

What I like about the Company

  • Seasoned management team  - The Company is founded and led by entrepreneur, Ricky Lee, who has successfully sold their businesses before (Norelco Centreline). Norelco is now part of UMS Holdings. This probably helped explained why the Company was about to turn in a profit in its 2nd year of operation
  •  Some shares for the public investors - Good to see that the Company continued to engage public investors by keeping 800,000 shares for them while the bulk has been placed out

Some of my concerns

  • Heavy reliance on 6 key customers - the 6 major customers accounted for >90% of the revenue. Hence the financial health of GVT is heavily dependent on the OEM who in turn is heavily dependent on their ultimate customers. The ultimate customers does not have any contractual obligation to GVT as it is with the OEM. The 6 major customers is listed below.

  • Cyclical industry sectors - The semi conductor business is highly cyclical (since close to 80% of the revenue is from this industry). At one time, our market was filled with the semi-conductor players such as Chartered Semiconductor, Stats Chipac and UTAC. Today they are no longer listed on SGX. The manufacturing sectors have been undergoing consolidation and GVT will continue to be subject to the cyclical nature unless they are able to diversify away from the semi conductor business
  • Pre-IPO investors with "below market standard" moratorium - The list of pre-IPO investors are mostly individuals and their lock up period of 3 and 9 months respectively is "below" market standard of 6 and 12 months. You wouldn't rely on these investors to stay too long once they have made sufficient returns
  • Rich IPO valuation - The IPO is probably above its fair value (some may say over-priced) at 12-14x PER. After the 2H correction in the market, many of the OEMs are trading at that mulitples while contract manufacturers are trading at attractive valuation of below 10 (see Peer Analysis below)
Peers analysis

I did not include the likes of Venture, AEM, Valutronics etc as the Company did not list them as competitors. The list of competitors in the prospectus are listed below and there are 3 SG listed companies:


Based on the peer analysis, you can see that JEP holdings is the odd one one but closest to GVT in terms of market cap. Frencken Group and UMS holdings have market cap in excess of $150m, with stable revenue and net income. In fact both of these companies pay dividend yield of 4% to 9%. (Mr. IPO is vested in UMS holdings).


Conclusion

This is the first IPO of the year and i really wished i can give it a better rating. The good thing is that sentiments are probably better now than a few weeks back. Unfortunately, the rich valuation does not quite stack up unless i get more aggressive on the second half performances of GVT (which i am not privy to the numbers)

Investors are better off paying current market price for Frencken or UMS Holdings as it offer a recurring yield and is more established than GVT Venture. They also doesn't have the potential overhang when pre-ipo investors cash out of GVT. It is a chopped-chilli rating for me.

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