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LMS Compliance Ltd

LMS Compliance Ltd ("LMS" or the "Group") is offering 14m shares at $0.26 each for a listing on Catalist. The IPO will close on 29 Nov at 12 Noon nd starts trading on 1 Dec 9am. Based on the IPO price, the market cap is around $22.73m. The Group has four main business units as shown below.   The Group offers quality testing and certification services for its customers across a gamut of industries, ranging from environment, food and product safety and quality as well as industry compliance. The Group have the capability to conduct over 1,110 accredited tests and over 10,200 non-accredited tests for clients in mutliple sectors in Malaysia. Financial Performance  The Group has been growing steadily with revenue increasing from MYR 14.5m in FY2019 to MYR17m in FY2021. The net profit has been pretty consistent as well, starting from MYR 3.9m to MYR 4.9m over the same period. Based on the prospectus (page 31), the PER is 12.4x based on pre-placement shares of 72.56m. If I

5Y Frasers Property Green Retail Bond 4.49% Maturing 16 Sep 2027

Frasers Property launched a 5 year green retail note with fixed interest rate at 4.49%. This is part of the MTN programme which Frasers has in place with the banks.

Financial Horse has written a good article on it, so I don't have to repeat myself. You can refer to his write up here or read up Beansprout's version here

Placement tranche

The placement tranche of $120m was offered to institutional and high net worth individuals. I understand from bankers close to the deal that the majority of the placement tranche was allotted to the private banking channels. Participation from institutional investors was understandably tepid as most of them are in a 'risk-off' mode in view of the rising interest rate environment and nursing losses from fixed rate investments. If the interest rate for this bond has been floating (instead of fixed), we will probably see better institutional participation. 

The retail bond tranche is a whopping $300m with an option for Frasers to upsize by another $230m if the demand is "hot". In other words, you are likely to get the allocation you apply for. The retail offering will close on this Wednesday (14 Sep 2022) at Noon. The bonds will pay interest semi-annually on March 16 and Sep 16 every year and be redeemed on Sep 16, 2027.

What I like about the issuance
  • Retail investors don't have much option to start with - I would like to take the half full glass to say they do want to distribute to retail investors. lol. This is one of the rare retail bond issuance. In the past, you see Perennial and Oxley tapping the retail bond market and Frasers did issue its first retail bond in May 2015 and upsized its offering from $200m to $500m. The bonds were fully redeemed. This time round, the total bond offering is $650m if it upsized to the max. Having said that, the interest rate environment is pretty different from that in May 2015
  • Green component to the bond offering - The use of proceeds will be used to finance eligible projects that meet Fraser's Green Finance Framework. At least you are lending money that has some ESG element. 
  • Reputable sponsor - While the Sponsor may not have the Temasek halo, it does have some presence locally with REITs such as Frasers Centrepoint Trust or Frasers Commercial & Logistics Trust. As such, I would regard Frasers as a "big" boy and its market cap is close to $4.16 billion based on share price of $1.06. 75% of Sky Eden was sold on the first day of launch at an average of $2,100 psf. I questioned the rationality of buyers paying that price for a 99 leasehold property yet to be build but that is beside the point and a reflection of the buoyant property market. Having said that, they did fully redeem their first retail bond that was issued in 2015.
Some of my concerns
  • Rising interest rate environment - The interest rate environment will likely stay high in the near term (next 12 months) given we are taking the cue from the US Fed. According to some experts, the high interest rate environment will only ease in the second half of 2023. In a rising interest rate environment, investors will take some capital loss if they want to sell the bonds before its maturity
  • The interest rate spread is marginal - With SSB Oct 2022 issuance giving 2.64% return over 5 years, the spread for retail investors (without much optionality) is around 1.83%. In other words, at 4.49%, you have a little risk of default and if you need to sell before 5 years, you may have to suffer a small capital loss. You will need to ask yourself whether you need the money or not. If the answer is you are likely to need the money and not hold till maturity, then you might want to park your cash in SSB instead given that you can redeem it at par (i.e. no capital loss). The latest SSB Oct rates are shown below.
SBOCT22 GX22100X

Will I buy the bonds?

Given that I have just bought an Investment Property, I don't have money. If I have some spare cash that I don't need for 5 years, I might allocate a small portion purely for diversification. If you want an investment grade bond, you may want to look at Astrea 7 Class A-1 (SGD) or Class B (USD) instead. 

Given that you are likely to get what you apply for, just apply for the amount you are comfortable with and don't put too many eggs in one Issuer.

Happy Frasers bonding.