Sunday, 21 August 2016

AGV Group Limited

AGV Group Limited ("AGV Group" or the "Company") is offering 26.92m shares via placement at $0.22 each, comprising 21.82m new shares and 5.1m vendor shares for a listing on Catalist. The offer will close on 24 August 2016 at 12pm. The market cap based on the IPO price is S$27.7m.

I don't intend to spend too much time on this IPO as all the shares are placed via placement.

The Company is one of the leading providers of hot dip galvanizing services in Singapore to steel and iron fabrication industries with a well diversified client base.

According to the prospectus, the competitive strengths are as follows:
  • market quality services at competitive prices
  • attuned to customers' needs
  • experienced and management team
  • established business relationships and extensive networks
Financial Results

While the revenue is growing steadily, this is still a small cap company with revenue of less than $20m. The first half profit for FY2016 is actually lower than that of FY2015.

Based on the EPS (post-placement share cap) of 1.78 and assuming the service agreement is in place, the IPO is priced at a PER of 16.6x. This is not exactly "value for money" in Singapore context. 

Some of my concerns include:
  • This is a small cap company with revenue less than $20m and in a competitive industry
  • Vendors are cashing out at the IPO
  • There is a long list of pre-ipo investors who invested at around 8.8 cents who may want to exit
  • The listing valuation at 16x historical is not exactly compelling
  • The current IPO sentiments and climate is weak
For the above reasons and given there is no public tranche, i will give it a zero rating.

Happy IPOing

Wednesday, 3 August 2016

China Jinjiang Environment - Balloting Results

The balloting results is out for China Jinjiang but CICC is probably not so "experienced" with our local regulations and the launch is delayed till 2pm. There were any announcements and the following were sourced from the Straits Times. 

Everyone who subscribed for the public tranche will be allotted some shares. The bulk goes to investors who subscribed for 50,000 shares and they will be allotted 38,000 shares. 

The substantial placement holders are listed above. You decide for yourself if these are "good" names. 

There will be some stabilization exercise due to the over-allotment. Good luck to those have the shares. 

Subsequent to its advertisement, it made the following changes and delayed the launch from 9am to 2pm...

Happy IPOing 

Sunday, 31 July 2016

China Jinjiang Environment Holding Company Limited

China Jinjiang Environement Holding Company Limited ("China Jinjiang") or ("the Company") is offering 92,419,300 shares at $0.90 each for a listing on SGX where 87,798,300 shares will be via placement and 4,621,000 shares via public offering. The IPO will close on 1 August at 12pm. 

Assuming over-allotment is not exercised, the market cap will be $1.08 billion. 

Principal Activities

The Company is the first private Waste-To-Energy ("WTE") operator in the PRC and is the leading WTE operator with the largest waste treatment capacity in operation. Its business primarily focuses on the planning, development, construction, operation and management of WTE facilities in the PRC. A WTE plant basically processed waste to generate electrical energy. See definition here.

The Company operates 16 WTE facilities in 12 provinces, autonomous regions and centrally-administered municipalities in the PRC with 4 under construction. The current total waste treatment capacity is 22,830 tons/day for the WTE facilities in operation and will increase to approximately 44,000 tons/day when fully completed.

According to the prospectus, the Company intends to:
  1. Maintain market leading position through growth opportunities
  2. Improve its technical capabilities by adopting advanced technologies from Europe
  3. Diversify in the WTE value chain 
  4. Expand to South East Asia and other developing countries
Financial Highlights

Revenue and profits grew strongly over the last 3 years where revenue grew by a CAGR of 11.5% to reach RMB 1.588b or S$320.792m and net profit grew by a CAGR of 32.1% to RMB 404.609m or S$81.73m

Assuming 1 RMB is around $0.202, the EPS for FY2015 is approximately Singapore 8.18 cents. Based on the IPO price of 90 cents, that translate into a historical PER of around 11x. 

Based on the enlarged share capital of 1.2b shares, the EPS is around RMB 33.58 cents or Singapore 6.78 cents. That will translate into a historical PER of 13.3x. 

Assuming the EPS for FY2016 grow by 25% (i am guessing), the EPS will be 8.475 cents. If it pays out dividend of 50%, the yield is about 4.7%.


Cornerstone investors subscribe for ~9.3% of the post-diluted shares and in connection with the offering, there would also be about 13,862,800 shares available for market stabilisation purposes should the over-allotment be exercised. 

Use of Proceeds

The use of proceeds is stipulated in the table below.

Competitive landscape

This is the competitive landscape done by Frost and Sullivan and China Jinjiang has the biggest market share.

Fair Value

The NAV per share post IPO is $0.66 but the peers listed in HK and China are trading at much higher multiples.

Given the EPS for FY2015 is Singapore 6.78 cents, assume a fair value range of 13-18x (based on the table above), the fair value range is $0.88 to $1.22

Assuming EPS for FY2016 is 8.475 with a fair value range of 10x-14x (assumes it trades closer to the HK listed peers), the fair value will be between $0.85 to $1.18

What I like about the Company
  • Leading private market producer with stable business to process waste and generate electricity 
  • The WTE facilities are well spread out across China with a nice mix of facilities in operation (recurring income) and facilities in the preparatory stage (future growth)
  • International Finance Corporation ("IFC"), a member of World Bank, provided the group with funding in 2004 and the presence of known institutional investors like Fortress helped provide some comfort to its corporate governance structure 
  • Strong revenue and profitability growth over the last 3 years and attractive net margins of more than 20%
  • Operationally high cash flow generative but highly capital intensive
  • The Company intends to pay out 50% of its net profit after tax for FY2016 and FY2017 as dividends. This is not typical of most S-Chips listed on SGX
  • Audited by Deloitte & Touche (big 4)
Some of my concerns
  • Although the businesses are in PRC, the holding company is incorporated in the Cayman Islands and that could potentially pose an issue in enforcing civil actions
  • Capital intensive model where a new WTE facility would require approximately RMB 400m and the development process takes 24-36 months
  • Some of the facilities have been awarded concessions without having carried out a tender process 
  • Company is highly geared with short term debts. This may cause issues during periods where financing is not readily available. As of last year, current liabilities exceeds current assets by RMB 164m
  • Investors in Singapore are generally wary of S-Chips and the weak sentiments on SGX due to the "collapse" of Swiber is not helpful
My Chilli Ratings

I have to say that if not for my "biased" view towards Chinese companies and their accounting fair values, i actually quite like the sector and the market leading position of China Jinjiang. It also has a good mixture of operating assets which provide recurring revenue and assets which provide future growth. It has been priced "attractively" vis-a-vis its other listed peers at $0.90 and the promise to pay a regular dividend for the next two years is quite refreshing for an S-chip (please keep it up).

My own view is that China Jinjiang is as good as it can get for an S-Chip to want to list here. It will be a test case to see if investors here are ready to accept S-Chips again. I would have given it a 2 chilli rating if the IPO sentiments was better.

l give it a one Chilli rating due to reasons mentioned above and with the fair value provided. 

(You can see that i have done this at 1.45 am and suffering from a jet lag but i post this nevertheless as i know readers are waiting). Let me sleep through and see if my analysis differs when i wake up tomorrow.

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