Friday, 17 March 2017

Kimly Limited - Balloting Results

Kimly announced that its IPO of 173.8m shares were collectively 8.3x subscribed on an overall basis. My back of envelope computation showed that the public tranche was 336x subscribed.

For investors who applied for the public tranche, the balloting table is presented below:

Investors who applied for 100k shares will have a 2:25 chance of getting 6,000 shares.

The insiders, including the relatives of the founders and Heliconia (via Vanda 1 Pte Ltd) supported the IPO strongly with Vanda 1 subscribing for an additional 27.7m shares in addition to the share it held currently. 

"We are very encouraged by the positive response to our IPO from the investors, and we believe their warm reception underscores the strength of Kimly's business fundamentals and our future growth potential. Going 
forward, we will be focusing on using technology to increase our operational efficiencies as well as to cater to the increasing number of tech-savvy customers, such as providing an online platform to order our food
products."  - Mr Vincent Chia (谢书强), Executive Director of Kimly

 Good luck to those who managed to get the shares! Huat ah..


Thursday, 9 March 2017

Kimly Limited

Kimly Limited ("Kimly" or the "Company") is offering 173.8m shares at $0.25 each for which 170m shares is via placement and 3.8m shares via a public offering for a listing on Catalist. The offer will close on 16 March 2017 at 12pm and trading will start on 20 March 2017. The market cap based on the IPO price is S$288.7m.

Principal Activities

Kimly is the largest traditional coffee shop operator in Singapore. It operates and manages coffee shops under the "Kimly" brand and food courts under the "foodclique" brand. It has 64 food outlets of which 56 are coffee shops, 3 industrial canteens and 5 food courts in tertiary institutions. The 64 food outlets are currently running at 98% occupancy rate. In addition to running coffee shops and food courts, the Company also operate 121 food stalls including 36 "mixed vegetable" rice stalls and 43 dim sum stalls.

Financial Highlights

The revenue has been growing at a CAGR of 7.6% over the last 3 years from $148.8m in FY2014 to $172.2m in FY 2016. Based on the unaudited pro forma, the profit attributable to owners grew by a CAGR of 9.9% from $20m to $24m during the same period.

According to the prospectus, if the service agreement is in place, the EPS will be 2.01 cents for FY2016. This translate into a historical PER of around 12.44x. Assuming a 50% payout, the implied dividend yield is around 4%.

Assuming EPS grow by 5%, the EPS will be around = 2.01 x 1.05 = Singapore 2.11 cents. That translate into a forward PER of 11.8x and dividend yield of around 4.2%. 

Use of Proceeds

Nothing controversial. Majority of the proceeds will be used to expand and improve its productivity and efficiency.

Substantial Shareholders

Mr. Lim Hee Liat is the substantial shareholder with ~42% stake with other founding members. There are 2 institutional investors - namely Vanda 1 and ICH Gemini Asia.

Vanda 1 is managed and controlled by Heliconia Capital Management. Heliconia also invested in Jumbo as a cornerstone investor in October 2015. My write up on Jumbo is here. The presence of Heliconia as pre-ipo investor bodes well and both Vanda and ICH will be subject to lock-up. The effective price paid by the pre-IPO investor is around 20c. I expect both investors to be vested for the longer period post IPO.

What I like about the Company
  • Recession proof business. Coffee shop culture is part and parcel of our lives and there is demand for "cheap" food during good times and bad
  • Highly cashflow generative business. You need to pay cash before you can get your fix of kopi every morning. On that note, the Company has no debt on its balance sheet and will have cash of $74.5m after the IPO
  • Financials are audited by Ernst & Young, a big 4 audit firm
  • The management is experienced and proven team. The founder started the business in 1990 when he was only 24! 
  • There are low hanging food which efficiency and cost savings can be achieved, such as setting up a central kitchen and improving the "cashless" payment system for younger customers
  • Intends to pay at least 50% of net profits attributable to shareholders as dividends
  • Insiders (one ED and 3 associates of ED) are supporting the IPO and intends to subscribe up to 10.8m new shares
  • The base salary of the management team is reasonable and not excessive and the service agreement helped provide an alignment of interest
Some of my concerns
  • Low barriers to entry and highly competitive industry. It is not exactly difficult for a consortium to buy up coffee shops and start running them. As such, there are many competitors in this space. Competitors include Broadway, Chang Cheng, S-11, Badaling, Kim San Leng, Koufu and Kopitiam
  • The NAV is only 4.56 cents versus the IPO price of 25 cents. In other words, you are paying a premium to "buy into the coffee shops"
  • The labor crunch and lack of Singaporeans willing to work in these sectors may affect the business operations and future growth
Peer Valuations

I received the above table from my friend and it looks fine. Helped me save time as i don't have to recreate my own list. The peers are trading at an average PER of around 24x!  Japan Food is trading at around 17x PE and at 4.4% yield. 

Assuming the "fair value" is 15-18x (i am being conservative here), the fair value of Kimly based on the forward EPS of around 2.11 cents is between 31 cents to 38 cents. If it trades up to more "unreasonable" levels of 18-22x, the fair value will be between 38 to 46c. I will be more conservative here and expect the price to debut between 31 to 38 cents.

My Chilli Ratings

I am giving it a 3 Chilli ratings. Hoot ah!!!

The IPO is priced very attractively vis-a-vis its peers. This is a good chance to own some coffee shops that is highly cash flow generative, has no debt and gives you a yield of more than 4%!  

(Do note that Mr. IPO is vested hence the view is super biased)

Saturday, 14 January 2017

Dasin Retail Trust

Dasin Retail Trust ("DRT" or the "Trust") is offering 151,768,900 units at $0.80 per unit of which only 2m units will be available for the public tranche. There is an over-allotment option of 9,343,300 units in the event the IPO is oversubscribed. A separate cornerstone tranche of $25m of units have been offered to China Orient Asset Management and Haitong International Fund SPC.

Its principal investment mandate is to invest, develop income producing real estate in Greater China with initial focus on retail malls. The prospectus is here and the IPO will close on 18 Jan 2017 at 12pm. Investors need to know that this is registered under the Business Trust and is not a REIT.


The initial portfolio comprises 3 retail properties and DRT will acquire Shiqi Metro Mall by 30 June 2017. The properties are located in Zhongshan City, Guangdong. To help you visualize where the city is, Zhongshan city can forum a "triangle" with Macau and Hong Kong in the Pearl River Delta region. About 66% of the IPO proceeds will be used to acquire the portfolio with the balance repaying existing loans, transaction costs and for working capital.

According to the prospectus, there is higher economic activity, standard of living and strong consumer spending culture in Zhongshan city vis-a-vis rest of China.


The Sponsor is Zhongshan Daisin Real Estate Co.., Ltd, a leading developer in the city of Zhongshan. The sponsor is an award winning real estate development company in China and has concluded an extensive "Right of First Refusal" pipeline with DST.

Distribution "Waived"

Distribution waiver, in whatever terms you described it, is a form of financial engineering to me.

According to the prospectus, the Sponsor has selected mature assets as well as younger assets that have yet to reach its potential. The Sponsor waived a portion of its distributions entitlements to ensure investors receive a "market-level" rents immediately... whatever that means.

In layman terms, you can translate it as "The Sponsor has decided to "boost" the yield to comparable China REITs, otherwise, investors will not subscribe to its IPO". The distribution waiver will step down over time and end after 2021.

Based on the waivers, the projected yield will be 8.5% for FY2017 and 9% for FY2018.

Without the Wavier, the yield will drop to 3.8% and 4.7% respectively. 

NAV per unit (please correct me if i am wrong)

This is so difficult to find in the prospectus. Assuming the equity (page 152) is RMB 2,702,803,000 and the total number of units outstanding is 549,606,000 (page 137), the NAV per unit in RMB is 4.9 RMB per unit or $1.01 per unit. The IPO price of $0.80 is at a discount to its book value.

What i like about Daisin Retail Trust

  • In built rental escalation clauses in Ocean Metro Mall and Xiaolan Metrol Mall as well as expiry of rental free periods for Carrefour at Ocean Metro Mall
  • The infrastructure development such as the Shenzhen- Zhongshan bridge and the Hong Kong - Zhuhai - Macau bridge will spur economic development to these 3 regions and will benefit Zhongshan
  • Seemingly strong sponsor with long track record
  • The CFO of the Trustee-Manager, Mr. Ng Mun Fai, has previously worked at KPMG Singapore and likely to be one of our own. Lol. At least should trust our kaki lang on the financials? The only flip side is he just joined DRT in 2015, hoped he stays...
  • The sponsor continues to own ~60% of the malls, providing some alignment of interest
  • It is not highly levered, the leverage is around 30.7%
  • IPO is at a discount to its book value.
  • Ability to attract good tenants across all its malls

Some of my concerns
  • Overly concentrated in one city of Zhongshan
  • The land leases will expire between 2041 to 2046 compared to the freehold status of malls in Japan (Croesus Retail Trust). While this is "common" in China, I have no idea what will happen when the lease expires after 24 years
  • The use of distribution waiver as a form of financial engineering meaning it will offset any potential rental escalations.  
  • Malls are in pretty saturated market and the behavioral patterns of Chinese consumers are changing with the presence of online malls.  
Listed Comps

Dasin is definitely not the first China trust to list on SGX. Let's look at some of its peers. Listed comps include the list below:
  1. BHG Retail Reit. My write up is here.
  2. CapitaR China Trust
  3. Fortune REIT HKD
  4. Mapletree Greater China Trust
I think the two closest comps will be BHG Retail Trust and Capital R China Trust. BHG launched at the IPO price of $0.80 per unit at the yield of 6.3% (with financial engineering) and had given it a zero chilli rating back then.The price has since dropped to 65c, giving it a yield of 7.75% now and at 0.81x its book value.

Capital R China is currently yielding around 6.6% and at 0.92x book value

My Chilli Ratings

While i don't like the financial engineering, the issuance is priced at 20% discount to its book value and at an inflated yield of 8.5%. This compares favorably to BHG at 7.75% and CapitaR China Trust at 6.6%. I have not done an analysis on how the yield will change as the distribution waiver falls.

I will give it a one chilli rating given its fairness in pricing the IPO. My gut feel is don't expect much fireworks but I don't expect it to drop drastically given its relatively small issuance and fair pricing.  

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