Monday, 26 December 2016

Singapore IPOs Tikams for 2016

Some of you may be wondering why i have been missing for so long, well i do sincerely apologize as i have travelling quite a bit. The only thing that reached a record high this year is probably the amount of time i spent in the air . . . I can probably compile an album of all the "airplane food" I had in 2016 but let me do that in another post ^_^

Recap of 2016

Similar to last year, 2016 is probably another year to be forgotten (only 5 days left). There are 16 IPOs and not many of them have public offering. As of Xmas eve, the performance of these IPOs are summarized below (sourced from Shareinvestor)


Mr IPO's tikams for 2016

A slow year is probably and understatement. There weren't many IPOs to participate in to start with. 

I managed to participate in 2 IPOs through placement (A thank you to JY ^_^) and ended 2016 on a positive note. Glad to see that both IPOs still in positive territory!



The returns from 2016 is much better than 2015. You can see my prior tikams below.


I would like to end this post by wishing all readers a wonderful and prosperous 2017. 


"Next year will be a challenging one with heightened geopolitical risks. President Trump is a loose cannon and clashes with China is unavoidable. China is getting increasing assertive and we have probably touched their nerves by trying to poke our nose into the South China sea affairs which frankly is none of our business. (We still haven't got our tanks back!). Our economy is facing challenges with record high retrenchment since 2009! This trend is likely to continue and making China upset will not help..." Mr. IPO

Sunday, 30 October 2016

HC Surgical Specialists Limited



HC Surgical Specialists Limited ("HC Surgical" or "the Company") is offering 30m placement shares at $0.27 each for a listing on Catalist and there is no public tranche. The offer will close on 1 Nov 2016 at 12pm and commence trading on 3 Nov 2016 at 9am. The market cap is S$39.5m based on the IPO price.

The Company is a medical services group primarily engaged in the provision of endoscopic procedures, including gastroscopies, colonscopies and colorectal procedures in Singapore. Actually you can literally "see what they do" from the Company's logo isn't it? I haven't seen a Company that adopts a digestive system as its logo before... imagine if it is a men's health clinic listing next? lol.

Shareholders

HC Surgical is controlled by both Dr. Heah Sieu Min (43.73%) and Dr. Chia Kok Hoong (23.75%) post the issuance.

Holding Structure


Financial Performance


Assuming the service agreement is in place for FY2016 and excluding the listing expenses, the adjusted profit and EPS based on the post IPO shares will be $2.93m and 2 cents respectively. This translate into a listing PER of around 13.5x. 

The Company also provided a pro-forma statement given the restructuring that took place and under that scenario, EPS improved by 21%. Assuming EPS for FY2016 improved to Singapore 2.42 cents, the listing PER will be around 11x


Use of proceeds


Dividends

The Company intends to pay at least 70% of its profit after tax as dividends for FY2017, FY2018 and FY2019. Assuming EPS is 2 cents, it translates into a yield of 5.1%, which is very decent.

What I like about the Company
  • Listing at an attractive valuation vis-a-vis its peers
  • Strong alignment of interest between founders and investors
  • Attractive healthcare sector that is still "in favor" on SGX
  • Public shares are probably placed to friends and family and tightly controlled
  • Good doctors - Both received many "service awards" and Dr. Chia, in particular, was awarded the Courage Fund Award for SARS cases in 2003
  • The two founding doctors didn't pay themselves huge salary but have in place a profit sharing structure that is tied to the profit generated
  • Stable cash flow generative business with no debt
  • Dividend paying company 
Some of my concerns
  • Key man risk - what if the two surgeons are no longer around? Can the brand continue to survive without them?
  • Too much control held by 2 men. While this is fine for the short run (and unless they are looking for a trade sale at a much higher valuation), it may not be healthy for the long run
  • There will be many post IPO acquisitions as it is the fastest way to grow, execution will be key in integrating good surgeons into the system and failure to retain these talents will disrupt the business. It is probably not easy to manage a team of high ego surgeons? 
  • Singapore market is quite small and competitive unless they expand overseas. While the Company has signed a MOU with Vietnam, it is not easy to remit money "out of Vietnam" 
  • Too much focus on stomach and colon? Hopefully their "logo" will not restrict their expansion of services into other areas.
  • It is quite rare to see that there are no lawyers or accountants on the board, they may want to add more diversity to its board
Valuation

Singapore O&G launched its IPO back in 30 May 2015 and has done very well since. The "3 chillis" write up is here.  It is currently trading at FY2016 PE of 22x and FY2017 PE of 18.7x. The table is summarized below. I didn't even use Raffles Medical Group or Q&M as they are now trading at 33x and 38x PE respectively.

HC Surgical is attractively priced vis-a-vis its peers. 

Assuming EPS grow by 20% in FY2017 (i am guessing), it will translate into a EPS of 2.4 cents. 

Based on the PE multiple of 20x-25x (being conservatively here), it would translate into a fair value range of 48 cents to 60 cents

This Company is attractively priced and managed by doctors with a heart. They could have definitely asked for a higher valuation. It's a 3 chillis for me.



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%.

Shareholders

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.


Sunday, 24 July 2016

Wong Fong Industries Limited



Wong Fong Industries Limited ("Wong Fong" or the "Company") is placing out 43m shares at $0.23 each for a listing on Catalist. There is no public offering and the offer will close on 26 July at 12pm. The market cap at IPO will be $54.1m

The Company is a provider of land transport engineering solutions and systems for various industries with a presence in Singapore, Malaysia and the PRC. The core businesses are:
  • sale and installation of equipment
  • design, customisation, engineering and integration of equipment and solutions
  • servicing and maintenance support
  • conducting training courses for industrial equipment users

Financial Highlights

As you can see from the table above, revenue from equipment sale made up more than 75% of the revenue each year with more than 90% of them derived from Singapore. As such, i will consider Wong Fong more of a Singapore-based business.

Revenue and profitability has been stable (or "stagnant"?) for the last few years. Revenue was around the $77m area and profitability at $5.3m. The net margin is about 7.2%. For FY2015, the EPS based on the post placement shares is around Singapore 2.4 cents. 

Based on the IPO price of 23 cents, the historical PER is around 9.58x. 

The NAV per share is about 18.8 cents (versus the IPO price of 23c).

Assuming the EPS remained the same at 2.4, the dividend per share is around 20% x 2.4 = 0.48 cents. This translate into a yield of around 2%.

Use of proceeds

Shareholders

The Lew family owns about 68.6% of the Company and the public holds 18.3%, with the balance held by Lee Chong Seng.

What I like about the Company
  • Long proven track record tracing back to 1964
  • It has been paying dividend and it intends to pay dividend of not less than 20% of net profits in FY2016 and FY2017
  • Stable business with a healthy order book
  • Strong cash flow from operating activities over last 3 years with $10.9m from FY2015
Some of my concerns
  • Small cap company
  • Competitive industry that is heavily dependent on foreign workers for operations in Singapore
  • Tightly held family run business  with related personnel in various departments
  • Lack of growth and scalability as revenue are mainly derived in Singapore
Fair Value

I struggled to think of a direct listed competitor in Singapore that is transport related. Given the stagnant revenue and profitability over the last 3 years, i will assume that it achieves the same level as prior year in FY2016.  Assuming a PE range of 8-10x, the fair value range is between 19 to 24 cents with the downside supported by its NAV of 18.8 cents.

Chilli Ratings

Since there is no public tranche, the rating is less relevant but I will give it a one chilli rating to show "support" for our local SME. ^_^

The IPO is fairly priced at the higher end of the fair value range at 23 cents and the growth prospectus is stable but not terribly exciting. I understand the shares were placed to friends and family of the Company. 


EC World REIT



EC World REIT is offering 188,125,600 Units at S$0.81 per Unit where 7.5m units will be made available to the Public while the rest are placed out. In addition to the offering, EC World raised another S$194m through the issuance of Cornerstone Units to Bank of Communications, Fosun International and China Cinda Asset Management.

EC World can also over-allot another 31.1m of Units for this offering in the event of high demand. 

The Sponsor is Forchn Holdings Group Co., Ltd and the IPO will close on 26 July 2016 at 12pm. The market cap based on the IPO price is $1,305.7 million.

EC World is established with the investment strategy of investing in income producing real estate used for e-commerce, supply chain management and logistics purposes with an initial focus in China (or more specifically Hangzhou).

Initial Portfolio

The initial portfolio comprises 6 properties located in Hangzhou as set out below. It is a diversified portfolio of assets comprising port, warehouse and e-commerce infrastructure. All the assets have 100% occupancy except for Stage 1 Properties of Bei Gang Logistics (at 55.3%).


It is good to see that the purchase consideration is below the "fair value" prices provided by Savills and Colliers.


While there could be synergy effect as the assets are mainly in Hangzhou, it could also mean that it is overly concentrated in one location and a SARs or localized natural disaster can "wipe out" the Company.

Projections for FY2016 and FY2017

The pro forma NAV per unit is $0.88 cents versus its IPO price of $0.81. This means a price to book of 0.92x.

Use of Proceeds

The use of proceeds is summarized below.


Projected Yield

EC World REIT is projecting a yield of 7.1% for FY2016 and 7.3% for FY2017. Without the "Master-Lease" arrangement, the yield for FY2016 will be 5.8% instead of 7.1%. The Master Lease arrangement will last for 5 years and the Sponsor believed the rental revisions thereafter will help breached the difference.


The distributions will be made every semi-annually to unit holders.

What I like about the EC World
  • The Sponsor expected to hold 45% of the REIT (assuming over-allotment is not exercised), providing some alignment of interest
  • Hangzhou is the "heart" of known e-companies such as Alibaba and Xiaomi and the business models evolved around efficient logistics and warehousing
  • The acquisition of the portfolio at 80% of the appraised valuations and its NAV is higher than the IPO price
  • The logistics and e-commerce sectors in China is expected to continue growing strongly
Some of my concerns
  • Out of the 6 properties, only 3 have been operational for more than 3 financial years.
  • Historical pro-forma was not provided for the last 3 financial years 
  • While i have not done any benchmarking, it seemed that fees are being layered everywhere with 10% p.a. of distributable Income as base management fee, performance fee of 25% of any uplift in DPU from prior year, "development management fee" of 3% of project costs incurred and property management fee of 1.5% per annum of the gross revenue of relevant property. I haven't even mentioned acquisition and divestment fees!
  • Dilution from the issuance of units for Management Fee for FY2016 and FY2017
  • Artificial yield support through "master lease" arrangement for certain properties for 5 years. The yield would have drop from 7.1% to 5.8% if there is no such arrangement or rental revisions therafter.
  • The remaining lease of the properties ranged from 37 to 45 years is pretty short. Not sure what will happen when the lease expires
  • The assets are concentrated in Hangzhou and will be tied to the economic health of that region too
Religare's view and Peer Valuation

Religare gave 5 reasons not to participate in this IPO. You can read it here.

(Source: Capital IQ)

EC World REIT is probably positioning itself for the tech and e-commerce angle but looking at the peers valuation, there are better options and they come without artificial financial support. 

Investors who want "REIT" exposure can consider some of the REITs in the table above such as Mapletree Logistics or Mapletree Greater China Commercial Trust.

Mr IPO's ratings

Questions to ask yourself before you apply:
  • Do you want to invest in another "logistics" REIT. 
  • Are you satisfied with the Yield from these investments? 
  • Do you want to have China exposure? 
  • Are there better comparables out there?
I will give it a zero Chilli rating - Avoid

I don't usually consider REITs for flipping, and will give it a miss for the concerns mentioned earlier - high fee structure, artificial yield support, low remaining leases (even though that is probably common in China) and better alternatives. 

Happy IPOing

Ps - I originally gave it a one chilli rating prior to going to bed, but felt that one chilli is probably too generous when I woke up.... and amended it to zero as it is more reflective of my review. ^_^





Thursday, 21 July 2016

Afterthoughts on Procurri ratings

Readers of my blog know that i hesitated quite a bit when I gave my ratings on Procurri over the weekend. In fact, i was quite hesitant to give it a 2 chilli rating but what eventually made me do it was the positive sentiments and demand from so-called "branded institutions" and you saw 4 of them in my update on balloting results.

Well, the beliefs that DBS was a "picky" manager and the presence of long only institutions is good for the IPO are probably "unfounded". The IPO didn't open as i expected and even tanked towards end of the day. 

While the ratings were done in good faith, I am actually quite upset with myself for not giving it a lower rating despite my reservation about its high valuation. As such, i am sorry to readers who was allotted shares based on my review.  

I would like to take this opportunity to share a few "lessons" on IPO for readers.
  1. Always invest based on your own analysis and understanding. My views should be just a reference and not a decision point
  2. Always have a plan when you subscribe for a IPO on the price level to take profit and the price level to cut losses. 
  3. If the IPO does not perform accordingly to your expectation, make sure you have a a cut loss plan and move on.
  4. IPO punting is not a substitute for retirement or long term investing. 
On a related note, readers always asked when the IPO review will be. You will have to be patient as this is not a full time job for me. I will try to do the write up over the weekends before the IPO closes.

Happy IPOing


Tuesday, 19 July 2016

Procurri Corporation Limited - Balloting Results



Procurri Corporation Limited ("Procurri") announced that its IPO was 1.9x subscribed where the public tranche of 6.88m shares were oversubscribed by 10x.

Commenting on the strong response from investors, Mr. Sean Murphy, Procurri's Global Chief Executive Officer, said, "We are elated with the broad-based support from both institutional and retail investors. The results reflect investors' appreciation for Procurri's investment story and a mark of confidence in our management's capabilities. Building on our solid fundamentals and increased access to the capital markets now, we are ready to accelerate and execute our growth strategies tobe the market leader in our industry." 

The balloting table is as follows:


Investors who applied for 50,000 shares will have a 45% chance to get 12,000 shares and investors who applied for 100,000 shares will have 50% chance to be allotted 25,000 shares. 

In addition, it is interesting to see quality "real money" investors being allotted at least 5% of the offer shares. The names are as follows:


Mr. Vesmond Wong, Chairman and Group Chief Executive Officer of DeClout Limited, added, "Being our maiden spin-off, the success of Procurri's IPO speaks volumes of our ability to invest, incubate, scale and harvest companies within our portfolio. After Procurri's listing on the Main Board of the SGX-ST, DeClout will continue to hold considerable interests in Procurri, participate in its growth, and be well-positioned to better reward its shareholders."

It is interesting to note that the market cap of Procurri is $156.8m while that of Declout is only $143.84m and Declout holds 46% of Procurri? If Procurri pops up tomorrow, investors might be better off buying into Declout instead of Procurri? 

Happy Declouting

Monday, 18 July 2016

Katrina Group Ltd



Katrina Group Ltd ("Katrina" or the "Company") is placing out 35.8m placement shares at $0.21 each for a listing on Catalist. The IPO will close on 22 July 2016 at 12pm. The market cap is around S$48.6m based on the IPO price.

Katrina is an operator of restaurants and cafes under different F&B Brands and concepts. The portfolio of names under Katrina are listed below


It has a portfolio of 34 restaurants. 


Financial Highlights



Based on the enlarged share cap and assuming service agreement is in place, the EPS will be 1.51 cents. This translate into a historical PER of around 13.9x.

Dividends

The Company intends to not less than 60% of net profits to shareholders for FY2016 as dividends. Assuming EPS remained at 1.51 cents, that will translate into yield of 4.3%

Use of Proceeds

The Company intends to use the proceeds to expand its business and for general working capital.

What i like about the Company
  • Can be highly profitable if the location and pricing point is right
  • The businesses are highly cashflow generative 
  • Intention to pay 60% of its profits for FY2016 as dividend
  • Simple and easy to understand business and structure
  • Expansion into China in a thoughtful way will be highly profitable (like Jumbo?)
Some of my concerns
  • Operating restaurants is not an easy business and relies heavily on manpower for its operations. 
  • The restaurants are "subjected" to higher rental revisions from time to time
  • Singapore consumers are fickle and picky and constantly seeking new experiences
  • Huge dilution to the NTA
  • While the couple controlled 84.6% of the company provides strong alignment of interest, it may be a tad too high turning it into a "family owned" business
  • i have never actually ate at these restaurants
What the peers are trading

Historical / Current Year PE Forward PE
ABR Holdings 18.3 NM
Breadtalk 42.2 23.16
Japan Food 13.21 16.62
Jumbo Group 32.07 25.07
Sakae Group NM NM
Tung Lok 43.1 45
(Source: CapIQ) 29.776 27.4625

While the peers are trading at rich valuation, it doesn't mean they make good investments. In fact, i think the whole sector is "over-valued". 

Assuming a more "reasonable" historical PE of 17x-20x, it would imply the "fair value" of Katrina is around 26 to 30 cents but if the valuation goes towards the "crazy level of 25-30x, then the price will be around 37 to 45 cents.

My Chilli ratings

Personally, i don't really like this sector for reasons mentioned above. The analysis highlighted that the entire F&B sector is "over- valued".  Based on the peer valuation,the IPO should at least see a decent debut worthy of at least 2 chillis.  Since there is no public tranche, my rating is not really important. ^_^

Happy IPOing

Sunday, 17 July 2016

Procurri Corporation Limited



Procurri Corporation Limited ("Procurri" or the "Company") is offering 68.88m new shares comprising 62m placement shares and 6.88m Public shares at $0.56 each. It has been a long while since we see a non-REIT listing on the main board.

The IPO will close on 18 July 2016 at 12pm and start trading on 20 July. The market cap of Procurri based on the IPO price is around $156.8 million.

The Company is a leading global independent provider of Data Centre Equipment and Lifecycle Services and aims to be the global aggregator. 

The name Procurri is derived from a Latin word and has the meaning of "leading the pack" and the tagline, changing the way the world buys technology, succinctly sums up its mission to be the global aggregator of enterprise hardware and services to its channels. 


Still don't understand what Procurri do? (me neither). Here is another pictorial attempt below but watching the corporate video may help slightly.


Financial Highlights


I have to say that the growth figures looks good no matter which angle i view it from. 
  • Revenue grew by an impressive CAGR of 108% from $28.4m in FY2013 to $122.8m in FY2015
  • EBITA grew from $3m to $13.6m during the same period and 
  • Net profit grew by a CAGR of 112% from $2m to $8.8m 
The impressive growth came via a series of acquisitions made by the Company


Looking at the detailed P&L, while Procurri enjoys a healthy gross margin of 33%, the net margin is actually quite "tight" at around 7%.

It is hard to project how FY2016 revenue and earnings will "look like". 

Assuming everything grow by 50%, the EPS will be around 3.1 cents x 1.5 = Singapore 4.65 cents

Valuation

Based on the pre and post enlarged EPS of 4.2 cents and 3.1 cents, the Company is listing at a historical PER of 13x to 18x.

The Enterprise Value is around $142.658m and based on the EBITDA of $13.6m, Procurri is valued at around 10.49x EBITDA, which is fairly priced.

If EPS grow to 4.65 cents (i am guessing), the forward PE will be around 12x. Assuming a PE range of 11-15x, the fair value will be between 51 to 70 cents. 

Dividends

The Company intends to distribute 25% of its net profit after tax for FY2016 and FY2017 as dividends.

Assuming the EPS is "stagnant" at 3.1 cents, the dividend per share will be 0.25 x 3.1 cents = 0.775 cents. That will translate into a yield of around 1.38%.

Competitors


Use of Proceeds


You can see that the bulk of the fund raising is going towards acquiring new companies for growth.

Shareholders


Declout is the major shareholder at 46%  with public investors at 24.6%. 

What i like about the Company

  • Fast growing business segment with impressive CAGR
  • Scalable business with revenue coming from three regions globally
  • Experienced management team with significant stake in the business
  • Intending to pay dividend for the next 2 years
  • Mainboard listing with DBS as Issuer
Some of my concerns
  • Low net margin of around 7% as it is a competitive industry
  • It has been growing through M&A and integration of new acquisitions may not be easy
  • It will continue to raise cash or issue shares to finance new acquisitions
  • Tinglobal is a major subsidiary incorporated in the UK. The impact of Brexit on Procurri is unclear at this juncture
Mr IPO's ratings

I took the whole day to write this but couldn't decide on what "chilli ratings" it should get. On one hand, i quite like the company for its mainboard listing, letting retail investors participate and for its fast growing global business. In addition, DBS is always quite picky on its IPO mandate and its "endorsement" of Procurri is a positive thing. 

On the other hand, i am concerned about the high valuation and whether the growth is sustainable. Based on the IPO price and historical EPS, Procurri is probably fair valued. I also wonder why investors are not "rushing" into Declout if it is going to make a windfall on this. See article by NRA here.

I tried to get some placement shares but it is already closed. I also understand the demand has been pretty "hot".  I am going to give Procurri a 2 chilli ratings for the upcoming IPO but 1 chilli for the longer term as it really depends on whether the revenue and profitability is sustainable. 

It is a hit and run for me.  Happy Procurring. ^_^

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