Niks Professional Ltd ("Niks" or the "Group") is offering 21.8m shares at $0.23 for a Catalist listing. 1m shares will be via Public Offer while the remaining 20.8m shares will be through placement. The public offer will run from till 25 Oct Noon and commence trading on 27 Oct 9am. The market cap based on the IPO price is around $30m.
Principal Business
The Group is an established provider of family practice dermatology and aesthetics medical services with more than 25 years of operating history. The Group offers a comprehensive range of medical skincare products and salon services to complement their medical solutions and has operations in Singapore and China.
Financial Performance
The operations of the Group are pretty stable, generating approximately between $3-3.3 million in net profits after tax from FY2020 to FY2022, with net margins hovering at 27-29%. Assuming we exclude the listing expenses (non-recurring) and use the FY 2022 pro forma EPS of 2.09 cents, the valuation at which Niks is listed is around 11x. I am not privy to 2023 numbers but I definitely don't like the stagnating revenue and declining profitability shown in the 1Q 2023 pro forma numbers.
Location and products
What I like about the Company
- Long operating history with stable customers and profitable business - Niks has a long established track record of profitability, judging by the consistent revenue and net income over the last few years. It has managed to build up a group of loyal customers by word of mouth over time.
- Potential of the Chinese market - It is interesting to note that 20% of the FY2022 revenue comprise the distribution of skincare and beauty products to China. The Group distributes Niks skincare products through 11 regional agents in the PRC both directly and through e-commerce platforms. In the good old days, this counter would probably be positioned as an e-commerce beauty business targeting the mass affluent Chinese consumers and the IPO will sell like hot cakes. If this is a key selling point, the Company could have done a better job telling the story in the prospectus and elaborate more rather than simplistically stating that it will engage more regional agents and expand its geographical coverage
- NAV dilution is not as significant as other IPOs - In some IPOs, the dilution can be quite severe but in this instance, it is actually quite manageable. NAV per share of this Company post IPO is around 12.95 cents. This is because the Group owns the 3 properties (AMK Shophouse, Bedok Shophouse and Vision Exchange Property). I personally thought owning the properties are quite old school.
- Dividend paying - The Company intends to pay 50% of its net profits for FY2023 and 40% for FY2024 as dividends to shareholders
Some of my concerns
- Board governance structure - While it is not illegal, good market practice is for the chairman of the board to be independent from the management team. In this instance, the CEO is also that chairman of the board. I am not sure why they couldn't let an independent member be the chairman, it is not an unreasonable ask considering the Board will be dealing with a husband and wife team. Based on the credentials of Mark Andew Yeo Kah Chong, the deputy chairman is more than qualified to be the chairman. The whole justification on page 203 can be avoided and I don't buy those reasons given the husband and wife own 80% of the listco.
- Market positioning is unclear - Niks has roots in the heartlands and at the sametime, a flagship clinic in the more upmarket Centrepoint on Orchard Road. This can create confusion in the market as to whether you are playing in the mass market space or the premium space. This can be further exacerbated as they try to create an online presence as well. The management may want to think of its own market positioning or create different brands for the various segments
- Competitive segment - Dermatology as an area of practice is highly competitive as all GPs can offer simple dermatology practices. There are numerous specialist doctors in this space practising at places such as Mount Elizabeth or Novena and I haven't even started counting those one stop destinations offered by Kim Lim or those "celebrities" plastic surgeons such as Woffles Wu who had a famous traffic offence or Dr Georgia Lee who was sued by her business partners. The skin care products segment is highly competitive with many doctors and influencers trying to launch their own line of products
- Stagnating revenue and declining profitability - The market in Singapore is small and highly competitive. The Q1 numbers didn't provide much insight or comfort that 2023 will be a better year as there is no "seasonality" in business or operations based on what is stated in the prospectus.
Mr IPO Chilli Ratings (note that I am vested)
One of the hallmarks of my reviews is my ratings are unbiased regardless of whether I am vested or not. I have shared with you all my concerns above.
Unlike Sheffield Green, I was actually struggling to find why I would want to own this company ranging from a highly competitive market to bad governance structure to stagnating revenue growth. The growth in Singapore is probably limited so if the idea is to sell the skincare products in China, the story telling on the strategy and how the Company is going to execute that strategy and achieve that growth is absolutely critical but it is missing.
While market sentiments are pretty weak, I understand from grapevine that the placement was well executed and given the small issuance size and public float, the debut price can be quite manageable, Let's see if there is a strong anchor book when the IPO closes.
Given this is the first IPO after a long hiatus, I would like this Company to do well to revive our local IPO scene. It is also nice to see the Company having a small public offering tranche so I am going to give it a one chilli rating (i.e subscribe if you like it). In any case, I have been feeding on grass for a long time already and one swallow is not going to make a summer.... 🤕
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