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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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Southern Alliance Mining Ltd.


Southern Alliance Mining Ltd ("SAM" or the "Company") is placing out 76m placement shares comprising 56m new shares and 20m vendor shares at $0.25 each for the upcoming IPO. The IPO will close on 24 June 2020 at 12pm. The market cap is $122.25 million.

There is no public offering, hence i will not spend too much time to cover it.

Business Overview

The Company is  based in Pahang Malaysia and principally involved in the exploration, mining and processing of iron ore. They have been operating the Chaah Mine in Johor since 2008 and have been granted the right to carry out exploration and mining operations at 3 other assets.


Mining Assets

No idea why the corporate office is in Pahang when all the sites are in Johor. They should relocate the corporate office?!

Financial Highlight


As you can see from the table above, SAM only became profitable in FY 2019, where revenue was 189.1m MYR and profit was 60.4m. Profit margin was 32%. 
The financial year ends on 31 July each year.


For 1Q 2020, the revenue continued to show strong growth. Do note that the Company suspended operations from 18 March 2020 to 22 April 2020 due to Covid-19 and no revenue was recorded for this period. Based on the trend, this year should be a better year than last year (I hope).    

Proposed dividends


The increasing dividend payout from FY 2020 to FY 2022 sends a good signal and probably is well aligned with the owners as they still own 82% of the Company.

Iron Ore Price Chart (sourced from Financial Times - Iron Ore 62% Fe chart)


The price of Iron Ore is on a nice uptrend and bodes well for SAM.

What I like about the Company
  • Long track record - SAM has been in the mining operations since 2008 with long track record and the founders are experienced
  • Tensions between Australia and China is probably going to benefit this Company as they may have to turn to alternative sources
  • Exploration assets going to provide new growth if the assets are proven
  • High iron ore price is going to benefit this company as they sell mostly at spot prices. They don't have long term contracts. 
  • Dividend paying - Company promised to pay dividends (if they are profitable) over the next 3 years
Some of my concerns
  • Environmental concerns - Not sure if the Company is adopting the best ESG mining practices 
  • Cyclical business and currently dependent on single Chaah Mine- mining stocks can be highly unpredictable as revenue and mining is highly dependent on supply and demand. SAM sells crushed iron ore as raw materials to pipe coating companies in the offshore oil and gas industry, which is facing significant industry headwinds. The mining lease for Chaah Mine will expire on 22 March 20204 but the state authority has extended for another 25 years
  • Owners selling out at IPO and SAM is not the registered holder of the mining leases for all its assets - I believed they are not the holder as the rights were granted to Bumiputras - which basically means favoring certain races in Malaysia. According to the prospectus, there is a risk that the 2011 Mining Agreement may be revoked
  • Access to Chaah Mine is dependent on an arrangement with Sime Darby Plantation
  • Liquidity of stocks will drop post IPO - The shares are tightly held and if you use Fortress Mineral as an example, the liquidity will dry up post listing. 
Valuation

SAM is listed at 6.5x FY 2019 PER using enlarged share capital and assuming service agreements are in place. The closest listed peer on Catalist would be Fortress Minerals, which is currently trading at 10.7x PE. Fortress Mineral listed in March 2019 at 20c and it is still trading at 20c with minimal trading volume

My Chilli Ratings

Since there is no public tranche, my chilli rating is meaningless. SAM is the first post Covid listing and the valuation is probably realistic - i.e. it is listing at a better valuation than its closest peer Fortress Minerals. I am personally not into mining stocks, so wouldn't have given it more than 1 chilli anyway. I understand that the vendors have placed the shares to their close friends and family, so whether you can "flip it or not" will depend greatly on their generosity on listing day.

Happy Iron Oring

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