("Aedge" or the "Company") is offering 16m placement shares at 20 cents each for a listing on Catalist. The IPO will close on 10 Dec 2020 at 12pm. The market cap is around $21.2m. As there is no public offering, I will not be spending too much time analyzing this Company.
Principal business
The Company provides 3 principal services listed below - engineering services, transport services and security and manpower services.
Group Structure
Financial Highlights
From the charts above, the key revenue drivers are security and manpower services (around 50%), and evenly split between engineering services and transport services.
As you can see that the financial year end is 30 June and the full impact of Covid is probably taken in the accounts as the "heaviest impact" is in Q2 2020. It was likely to be headed for a good year till Covid struck.
Having said that, the net margin has historically been low, hovering between 2.3% to 5.1% for the last 3 years.
Based on the EPS of 1.18 for FY 2019 and 0.4 for FY 2020, the PER range is 16.9x to 50x. While I have not spoken to the management, I understand from unverified sources that it is listing at a forward PER in the 12-15x range, which seemed possible if I used FY2019 as the reference point, provided the Company was able to benefit from the post Covid world.
Looking at the adjusted NAV per share of 15.49 cents and comparing it to the IPO price of 20 cents, investors are quite "fairly treated" as there isn't a huge premium to NAV that we see in some other IPOs.
Shareholders
The Company is controlled by Mr Poh Soon Keng and his family and I spotted an error in the prospectus. Maybe they should engage me to proof read their prospectus. (whoever reading my blog from the Company, please note the error on page 52 and inform your sponsor and counsel) 😂
Board of Directors
All around the same age as the Chairman and CEO and some are already retired. A few of them are being appointed to the listed board for the first time. Nothing against retired directors as they have the time and connections but I would have constituted the board differently as it wasn't evident to me the value they are going to bring to Aedge
What I like about the Company
- Valuations seemed reasonable - Even though the Price Earning Ratio seemed high for a Covid impacted year, the adjusted NAV seemed close enough to the IPO price, which makes the IPO more palatable
- Transparent about salaries - fully disclose the salaries of the key employees and executives. Not sure why Mr. Poh has an "escalating" salary scale (page 169) but the basic salaries for the key executives seemed reasonable.
Some of my concerns
- Small cap company that is family owned - this looks and feel like a family run business and will remain a small cap company unless they professionalise their management team further and do some serious M&A (which Mr. Foo is entrusted to do). Given the small cap status, it is unlikely to attract institutional following
- Many diversified businesses - While some view diversification as a strength, I am actually not very sure how to evaluate this Company. Initially i thought it is a bus transport company, only to realise it is closer to Manpower services but then it looks like a construction firm as well with all the engineering services. It is sometimes tough to focus when you are running too many different types of business and there are no apparent synergies between these businesses
Mr IPO chilli ratings
I took a small allocation to give moral support to our local IPO companies and will give it a 1 chilli rating. Given the tightly controlled placement, my guess is that it should open above its IPO price but don't expect a huge pop similar to Credit Bureau Asia. In any case, there is no public offering 😴
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