For Information Only
This post is for information only as the IPO has been completed on 12 Feb 2020 and started trading on 14 Feb 2020. (My sincere apologies - somehow missed this)
Don Agro International Limited ("Don Agro" or the "Company") is the first Russian company in the agricultural sector to be listed on SGX. The IPO was via placement of 23m shares at Singapore 22 cents each. Based on the IPO price, the market cap is $33m
Principal Business
The Company is principally engaged in the cultivation of agricultural crop and production of raw milk in the Rostov region.
Competitive Strengths
I will not elaborate on the competitive strengths as it is in prospectus.
Financial Highlights
The Company showed declining revenue but increased profitability from FY2016 to FY2018. Looking at the HY2019, it seemed to be showing a nice growth in both revenue and profitability.
The HY2019 (Page 34 of the prospectus) seemed to be showing a strong traction where the revenue and profits grew by more than 100% over the same period last year. Assuming a more modest 25% growth from FY2018, EPS for FY2019 will be 4.25 x 1.25 = Singapore 5.3 cents.
That translate into a forward PER of 4.15x. (extremely value for money).
The NAV per share as of 30 June 2019 is around 28 cents (before the IPO). Including the IPO proceeds, the NAV translate to 26.7 Singapore cents, still higher than the IPO price.
Future Plans
Proposed Dividends
THe Company intends to recommend up to 20% of its net profit after tax for each of FY2019, FY2020 and FY2021. (See what i like about the company below)
What I like about the Company
- Exposure to agricultural industry - you can now access the agri sector from Singapore (if you don't mind the exposure to commodities prices, which is highly susceptible to weather conditions)
- Decent valuation - It is quite rare to see a company listing at a PER of below 5x and below its NAV. All things being equal (assuming we can trust the financials audited by KPMG), i guess it is necessary given investors are not familiar with companies from Russia
- Dividend paying company - It is good that the Company signaled its intent to pay dividends for up to 20% for the next 2 years. Assuming 20% x EPS of 5,3 cents = 1.06 cents. That translate into a yield of 4.8%, which is fairly decent if they deliver on their promise
Some of my concerns
- Russia is a tough place for foreigners to make money - I have heard enough horror stories about doing business in Russia. Many so-called experts in Russia are 'burnt'. One local success story is MacCoffee by Food Empire but most of the foreigners didn't survive. The mitigating factor here is that we have a local Russian company seeking listing in Singapore. While i welcome new foreign listing, i do hope they are seeking listing here with a long term view (not like some of the S-chips we had)
- Website is not even working - I tried visiting the website listed in the prospectus and it is not even working... 😟
- Exposure to Russian Rubles - The Company's operations are entirely based in Russia and its customers include major Russian food producers. As such, investors are exposed to underlying foreign currency risk exposure and Russian Rubles can be highly volatile (not to say about foreign currency controls). Go in with your eyes open
- Biological assets are very hard to value - While the Company has engaged KPMG to be its auditors (which is more comforting), biological assets are typically very hard to value and can be prone to factors that are difficult to predict or control
My chilli ratings
My chilli ratings is not important given it has already listed and it actually did well enough to open above water. All things being equal, I would have given it a one chilli rating. Decent valuation is probably required, given the “exotic” nature. It is hard to monitor the company that is based in a remote part of Russia. I didn’t do enough homework to see if the biggest shareholder is “trustworthy”, only time will tell. Personally i am not into both agricultural and Russia, looks like a potent Vodka for me!
But for those who dare, Happy Russian Rouletting !
Comments