Saturday, 16 September 2017

Cromwell Europe REIT

Cromwell European Real Estate Investment Trust ("Cromwell" or CEREIT") is offering up to 1,583,955,000 Units at €0.55 to €0.57 per Unit. 79.198m Units will be available for public offering in Singapore, 267.857m for a public offering in Japan (without being listed there) and the balance units will be via the Placement Tranche. The REIT is currently in book-building phase with the pricing to be determined around 21 Sep 2017. The market cap will be €1,814.8 million based on the maximum IPO price. The IPO is expected to close on 26 Sep and be listed on 28 Sep 2017. The draft prospectus is here.

CEREIT is the first Singapore REIT with Pan-European portfolio as show in the diagram below. 

The portfolio is being acquired at 1.7% discount to the Appraised Value. The Portfolio is spread across office, light industrial or logistics and retail. The summary of the IPO portfolio by asset class and geographies are set out below.

What I like about Cromwell Europe REIT
  • Decent yield - The yield of 7.5% to 7.7% is decent
  • Well diversified portfolio across asset classes and geography - The 81 properties are diversified across asset classes in 6 countries, Denmark, France, Germany, Poland and the Netherlands. The offices are located in major cities in Netherlands and Italy, the light industrial and logistics are spread across the 4 countries while the retail assets are mainly in Poland.
  • Freehold assets - The assets are predominantly freehold 
  • Long portfolio lease with Weighted Average Lease Expiry ("WALE") of 5.1 years - implying stability in predicting income

  • Potential upside if the Manager is able to execute as occupancy is currently at 89.3%
  • Experienced sponsor and manager - The Sponsor is listed on ASX since 2006 and has global of A$10.1b, meaning it is not a "fly-by-night" manager
  • Presence of cornerstone investors - The presence of Cerberus Singapore and Hillsboro Capital helped provide some institutional pricing to the issuance. The track record of the two cornerstone investors are not available
  • Decent board composition and management  - The board comprise of independent directors who are experienced
  • Exposure to Eurozone - This again depends on your view whether Europe has turned the corner. If your view is yes, then this is a positive factor, otherwise, you can move this to the "concerns" column πŸ˜‹
  • Not overly levered  - The leveraged ratio ranged from 34.3% to 36.6% and this provides some headroom to levered up to 40%

Some of my concerns
  • Low alignment of interest - the Sponsor will hold only 12.7% as at listing date (and even lower at 8.7% if the over-allotment option is exercised). There is no alignment of interest. The Sponsor is cashing out on its portfolio and their timing is good with Euros at a high. In addition, they will have one of the lowest Sponsor's stake for REITs listed on SGX πŸ™„
  • High fees - Seems like the Sponsor is not well-liked as it charges above market fees. There is an article that warns that CEREIT's overall management fees are on the high side and more than double the peer average πŸ€”
  • Performance fee - I don't like the performance fee of 25% of the difference in DPU. This sound a tad too high and not in line with market. No reasons why i should pay performance fee if Manager managed to increase the occupancy from 89.3% to 100% right or use financial engineering to boost DPU? Plus the rental demand and rates is frankly market driven, why should the manager be rewarded for this? πŸ€•
  • No economies of scale - The portfolio seemed to be so well-diversified that while it doesn't depend on any single property, the well spread out locations also mean that there is less opportunities for reaping scale in its operations. I have to caveat that i am not familiar with the properties and its location
  • Sponsor cashing out at close to book value - The issue is priced to the max at around its book value of €0.54 per unit. There is no "upside" from this valuation and the Sponsor is cashing out cleanly
  • Large free float - The huge free float of at least 87% probably mean that all the demand should be satisfied
  • Euro Exposure - It depends on your views of Euro against SGD (see 5 year chart below). The distributions will be made in EUR and converted to SGD at each distribution date. Investors who don't mind Euro exposure would welcome the issuance but for the majority of retail investors here, be prepared for a "wild" ride as the exposure cuts both ways. The good thing is you can actually receive the distributions in Euro if you opt for it. Perhaps can buy some Units so that you can go Europe to spend it for holidays every year (natural hedge)? πŸ˜‚

Listed Comparison IREIT (sourced from unless otherwise stated)

The only listed peer is probably IREIT even though it owns only office buildings in Germany. My previous write up on IREIT was here

IREIT didn't really debut well and the share price dropped post listing. The current yield seemed to be around 5.78 cents (annualised DPS) / 76 cents (last traded) = 7.6%. It is currently trading at a price to book of around 1.12x but the gearing is at 41.3%) Source: here.

My Chilli Ratings

This is a one-chilli rating for me. Buy if you are bullish on Eurozone or goes to Europe for holidaysπŸ– as it offers pure exposure to that region. The yield of 7.5-7.7% is respectable and is 'better valued' when compared to IREIT as it has a lower leverage and not trading at a premium to its book value. My key concerns are the manager's fees and the perceived lack of aligned interest given the low sponsor's stake.

Given the huge float, this is not a "hit and run" or "stag" game. Buy it only if it is part of your retirement plan for passive income. You can probably get it from the ATM or from the open-market post listing.

Voting time

Will you be subscribing to the IPO? Cast your vote here or click on the picture below!

 Click to vote

Wednesday, 9 August 2017

SGX Bull Charge Giveaway Results

I refer to my earlier post on the SGX Bull Charge Giveaway Contest that was conducted over my Facebook Page which ended 8 August 2017.

Interested participants must click "Like" on the post below to participate in the draw. 

I had wanted to give a higher weightage to "fans who shared" the post and there was 27 of you but unfortunately Facebook doesn't show me all the names, as such, i wasn't able to do that fairly. As a result, all participants stood an equal chance of being allotted.

71 of you managed to do that by the deadline but one of you only clicked "like" on 9 Aug and thus was not entered into the contest. sorry! πŸ˜‚

I then keyed in all the 71 names into my project set up in Random Picker as follows:

and the 12 winners of SGX Bull Charge are ....🎢🎢🎢🎼 (drum-roll)....

The above draw was conducted publicly. Hence, if you are one of the 71 participants, you can easily key in your name here to verify that you have been included in the draw. 

Thank you for your participation! I hoped you have enjoyed the contest πŸ˜€

Can the above 12 winners please "private message" or email your full name and email  to me by end of this week... I will then compile and send them to SGX who will then email you the registration link directly as they will need to collect other information such as your date of birth, contact numbers etc.

Last but not least... Happy Birthday Singapore!!! 

Sunday, 30 July 2017

SGX Bull Charge Giveaway Contest

This is a follow up post to "An Evening with Mr. IPO" with the contest details and how to get a running slot beside Mr. IPO.

Date and Time

Date:   17 Nov 2017
Time:     4pm till late

Prizes to Giveaway

12 complimentary tickets to SGX Bull Charge 2017. To ensure a wider and fairer distribution, I have decided to give out the complimentary tickets individually

Two Simple Steps To Participate

Step 1:  Visit the Facebook Page of Mr. IPO here and search for the post "SGX Bull Charge Giveaway Contest"

Step 2:  Just click "Like" or "Love" or any of the circled emoticons on that particular post. (Fans who share the post with their friends get extra brownie points πŸ˜€ )


When will the contest end?

The contest will run from now till 8 August 2017 and the winners will be announced on 9 August 2017 in conjunction with our National Day! (You always know i am patriotic right?)

How will winners be picked?

When the contest ends, I will use this  Random Picker (or other similar website) to pick 12 random numbers and matched the number to the participants according to the sequence of those who have "liked" the post. For example if you are the first one to "like" the post, you will be allotted "number 1" and if 1 is picked by the random picker, you would have won one of the complimentary SGX Bull Charge slot!  In this way, all data are kept confidential! 

The winners will just need to message me their emails so that i can pass them on to SGX for processing.

How can Mr. IPO fans dress up for the event?

While there are many fans, there is an equal number of "enemies" who can't wait to "chop" Mr. IPO to pieces. What can you do to save Mr. IPO if you are attending the event? 

I looked at similar events in the past to get some ideas...

Option 1: Dress like the Bull Mascot to help create "double" and "divert" the attention...

Option 2: Dress up as friendly neighbours from across the causeway

Option 3: Dressed as real fans of Mr. IPO (this will really help confuse the chilli choppers)

But please don't dress up like this or you will be slaughtered for sure... lol

Happy participating and good luck! 

While I can't guarantee the chance of you winning will be easier than applying for "3 chillis" IPOs but i can assure you that it won't cost you a cent to apply for this... better than the $2 wasted at the ATM ! 

Thursday, 27 July 2017

Aspen Group Holdings - Balloting Results

Aspen announced that its PUBLIC tranche was 7.8x subscribed. Super misleading considering that the public tranche is small. I think most IPOs try to use the entire subscription rather than the public tranche only. 

I didn't compute but if combined with the placement tranche, it's probably about "1x subscribed" 

Commenting on the subscription results, Dato' Murly, Executive Director, President and Group CEO of Aspen, said, "We are greatly encouraged by the strong investor demand for our IPO, which we believe reflects the confidence in the potential of our properties, prospects and future plans. We would like to thank them for their strong support and welcome them as our new shareholders. We will strive to grow our business further, riding on the bright prospects for the property development sector in Penang. With this listing, we believe Aspen is positioned for the next phase of growth regionally.
The balloting and placement table below. 

Interesting to see institutional support from Setia, Affin and Daiwa. They probably see "value" and know the company better than what my untrained eyes can't see. 

Good luck to those investors who went for the ATM. You will be 100% Bao Tio as indicated by the table above. Hope it's durian Bao Jiak tomorrow. 

Happy Aspening

Sunday, 23 July 2017

An Evening with Mr. IPO - 17 Nov 2017

It is my pleasure to invite you to spend an evening with Mr. IPO.... πŸ˜‹... Ok the subject header is misleading but the storyline goes like this... 

Mr. IPO has been invited by SGX to help promote SGX πŸ‚ Bull Charge 2017 among its legions of fans  where SGX will sponsor 10 lucky readers to run beside Mr. IPO for the 5km Mass Run (yes, it's complimentary like the free Sambal Chillies he dishes out. 😎). 

Unfortunately, Mr IPO may have to put on a disguise πŸ‘Ή due to the number of corporate titans that he has offended, especially from CEOs that have gotten chopped chillies from him. They frankly can't wait to chop πŸ”ͺ him into pieces πŸ˜“

As a safety precaution, Mr. IPO will be training up so that he can get away πŸƒquickly from the chopping knives. He may also volunteer to become the "face" of SGX Bull Charge 2017. Hence, readers who are keen to spend an evening with Mr. IPO will get to run beside him, and hopefully get a picture with him afterwards. 

This will be the first of a series of promotional post which I will be writing on SGX Bull Charge. If you have any suggestions on how I can run an online campaign to allocate the 10 tickets, that will be much appreciated! I intend to give out the tickets in pairs πŸ‘«

Personally I have participated in the annual Bull Run around Marina Bay since 2010 for the free exercise T-shirts 🎽(missed last 2 years due to travel schedule). The view is awesome as you run 5km around from the floating platform towards One Fullerton and then turn left to Marina Bay Sands before heading to the Singapore Flyer and ending back at the Floating Platform. I am sure you will enjoy the run. 

More details on how you can get a complimentary pair of running tickets will be released in the coming days on the Singapore IPOs Facebook Page (hint hint: what are you waiting for?)

Happy Bull Charging!  More information on the event below and can be found on here.

Event Details

Saturday, 22 July 2017

Aspen (Group) Holdings Limited

Aspen (Group) Holdings Limited ("Aspen" or the "Company") is offering 173.27m shares at $0.23 each for a listing on Catalist, of which 4.348m is for public and 168.922m shares via placement. The offer will close on 26 July 2017 at 12pm and starts trading on 28 July at 9am. The market cap based on the IPO price is S$199.32m. You can obtain a copy of the prospectus here.

Principal Business

The Company is a Malaysia-based property development group with a focus on developing affordable residential and mixed development properties and target middle-income mass market segment. Aspen intends to provide "value-added" options to its units, such as furnishings and home appliances of reputable brands at cost-efficient prices.

The flagship project of Aspen is the "Aspen Vision City", a 245-acre freehold mixed development project. Aspen has entered into JV agreements with Ikano (Ikano is the franchisee of IKEA for the South East Asia region and owns the franchise in Singapore) to develop some properties within the Aspen Vision City (artist impression below on Aspen Vision City)

While you can see the Penang bridge in the picture above, do note that Aspen Vision City is not on Penang Island itself but on the mainland in Batu Kawan. I have no clue where Batu Kawan is or its future potential. 


The Company has 3 stated on-going projects launched in Penang, namely Tri Pinnacle, Vervea and Vertu Resort. The estimated date of completion for Vervea and Vertu is 3Q 2018 and Q1 2021 for Tri Pinnacle. This will be the time where the bulk of the profits will be recognised. 

According to a Company fact sheet which i received from the IR company, most of the projects launched have already been sold ranging from 57% to 83%. According to that same fact sheet, the aggregate confirmed sales which have not been recognised as revenue amounted to approximately RM 1.108 billion. This will probably be the revenue that will be coming on stream in 2018 and 2021 when the projects are completed.

Financial Highlights and Valuation

The Company has started to recognise some of the revenue using % of completion method. The earnings will be very lumpy as the Company will be recognising revenue from ongoing projects and then launching new projects within the Aspen Vision City.


According to the valuation by Henry Butch, the market value of the projects is around RM 1,233.50 million. That translate into S$392m as of today's rate. I am not sure how that was accounted for in the books.

The prospectus is frankly not easy to read, i have also no idea how to interpret "Gross Development Value" and "Projected Development Profit". Perhaps someone in the know can enlighten me. Is the Company trying to tell me that there are profits to be recognised in future, that is why they can sell the Company at a high price to me today?

Use of Proceeds

The Company is raising $39.9m and intends to use the proceeds to acquire new land for future developments.


You can see from the above table that the Company will continue to be tightly controlled by the existing shareholders. It is interesting to note that the CEO, Dato Murly started working at Ivory Properties when he was 18 and he is only 30 years old now.  A very young CEO indeed (not to mention his high pay as well...)! 

SBK intends to subscribe for 26m shares at the IPO and the public will hold around 17% of the Company post listing. The SBK shareholdings will then be distributed to its shareholders post the listing of the Company according to the table below.

From the table below, you can see that shareholders of AVG and SBK paid around 2.08 cents to 4.41 cents. New investors are coming in at 23 cents.

Peer Valuation

Looking at the peer table above, probably the closest peer are Oxley and World Class Global (which is not in the table). You can find my write up on World Class Global here.

According to the prospectus, price to book is around 3.9x (23 cents divide by NTA of 5.89 cents). As you can see from the table above, most of the peers are trading at below 2x book value and generating a profit. Even World Class Global, with exposure to Penang and Australia, was launched at a price to book of around 2.28x based on its IPO price (now would be lower given the share price is below 26 cents).

If i use World Class Global as a benchmark, where its valuation is lower than Aspen, where investors are more familiar with it and where the founders probably supported the IPO at launch, the subsequent drop of WCG below its IPO price probably send a strong signal that investors here are not able to appreciate such companies - not to mention one that is coming purely from Malaysia. 

What I like about the Company
  • Focus on marketing quality properties to the masses - This is probably the right market segment to target in Malaysia where there will always be demand for affordable quality housing. 
  • Tie up with IKEA for mixed development - The JV with Ikano to develop the shopping mall and open an IKEA mall within Aspen Vision City is a good move to attract traffic to the mall. Mixed development concept is also catching on with families now preferring to stay close to amenities. 
  • KPMG is the auditor - okay at least they are using one of the big 4 to audit their accounts but i have not heard of Henry Butcher, the independent valuer
Some of my Concerns
  • Single country (mainly Penang) exposure - All the projects are located in Penang. Given the listing is in Singapore and reporting the earnings in Singapore, investors will have demographic, economic and currency exposure to Malaysia, especially that of Penang. Given how the MYR has depreciated against the SGD over the last 30 years, investors will have to see if they want the currency exposure. (This is not the case where they are taking advantage of local costs in MYR and selling the products in USD)
  •  Expanding to other South Ease Asia regions - The Company intends to expand into regions like Thailand, Philippines, Vietnam and Cambodia (sounds like an Oxley in the making).  While it holds potential, it is really too early to tell if they will be able to execute their strategy of exporting "affordable quality housing" overseas.  
  • Lumpy earnings and huge premium over its NTA - Adjusting for the estimated net proceeds and post invitation share cap of 886,617,900 shares, the NTA of 5.89 cents is at a huge discount over the issue price of 23 cents. Investors are paying forward for the future value of the land that is currently under development.
  • Company is currently loss making with no stated dividend policy - Company is still loss making with no clear sights of when it will turn in a profit or pay out a dividend. It will probably need to use all the profits generated to continue developing Aspen Vision City.
  • Joint ventures is always a risk - Sorry for my pessimism, JVs is always a risk unless the partnership is already tried and tested. While the tie up with Ikano is promising, there is always a risk that it may not work out. Here is an article on the fight over iconic Capitol in Singapore.
My Chilli Ratings

Comparing World Class Global where i give it a zero chilli rating, it will be hard for me to give anything higher than that for Aspen, especially when local investors here are more familiar with WCG, and that WCG promised to pay dividends and has a better price to book valuation.

(Additional note: Hattan Land, a developer from Malacca, did a reverse take-over of VGO, placed out shares at 28 cents as well and the current price is below its "IPO price" as well).

As such, it is a zero chilli rating for me. I will give this IPO a miss and perhaps use the $2 for a nice bowl of Penang Laksa.

Straw Poll

Thursday, 20 July 2017

Union Gas - Balloting Results

Union Gas announced that its IPO drew strong support from investors and was 7.1x subscribed.

Ms. Alexis Teo (εΌ ζ·‘ε©·), Chief Executive Officer of the Group said: "We are very encouraged by the positive response to our IPO from investors and I extend my deepest appreciation for the confidence they have shown in us. This listing is just the beginning for Union Gas. We have several expansion plans and I hope that our new family of investors will continue to support the Group as we carry out these plans."

The balloting table is presented below for your information:

It is difficult to get the shares through the public offering. Investors who applied for 100,000 shares will have 8% chance of being allotted 6,000 shares. 

The placement was quite likely to be placed out to close friends and relatives as well

Good luck to those who managed to get some shares!

Happy "gassing" πŸ˜‚

Tuesday, 18 July 2017

Netlink NBN Trust - Balloting Results

Netlink NBN Trust announced its IPO was 2x subscribed. Considering its large float, this is a decent subscription rate.

Mr Tong Yew Heng (唐耀兴), Chief Executive Officer of the Trustee-Manager, said, "The
robust demand from both institutional investors and retail investors to our IPO is a strong
vote of confidence in the NetLink Group's unique investment proposition. The NetLink
Group's future growth is driven by a clear strategy to tap opportunities in the residential,
non-residential and non-building address point segments, underscored by the continued
growth in data consumption. Going forward, we intend to provide our Unitholders with
regular and predictable distributions."

 The balloting ration is below.

It is not difficult to be allocated (between 70% to 100% chance) to get some shares. Mrs IPO managed to get 13,000 shares. I made the mistake of not getting Mrs to apply in the 100,000 range as that will get her 25,000 shares. (I didn't apply as i want to use cash sitting inside my SRS account. see post here)

Good luck to those who managed to get some shares. I guess i have to buy some from the open market. Let's see how it opens tomorrow. 

Saturday, 15 July 2017

Union Gas Holdings Limited

Union Gas Holdings Limited ("Union Gas" or the "Company") is offering 60m shares comprising 30m New Shares and 30m Vendor shares at $0.25 each for a listing on Catalist. The IPO will close on 19 July 2017 at 12pm and starts trading on 21 July 2017. 1.28m shares will be available for the public with the rest via the placement tranche. The market cap is around S$50m based on the IPO price. You can find the prospectus here.

History of Union Gas

The founder of Union Gas is a self-made man. His rags to riches story was featured in the Straits Times in Oct 2014, do take some time to read here. He bid for the cab license and started Trans Cab with 50 taxis in 2003 and tried to list Trans Cab in Nov 2014 (my IPO write up is here) but unfortunately for him, the IPO was de-railed by a poison pen letter. With hindsight, the onslaught of Uber and Grabtaxi (one of the risks I mentioned), Trans Cab would be facing extremely challenging times now. Similarly, i can foresee challenging times ahead for Union Gas.

Principal Business and Future Plans

Union Gas is an established provider of fuel products in Singapore with more than 40 years of track record. The Company has 3 main business segments:
  • Retail LPG Business

Union Gas is a leading suppliers of bottled LPG cylinders to domestic households and CNG to retail and industrial customers in Singapore. It operates more than 100 delivery vehicles and supply bottled LPG to more than 140,000 households in Singapore. My family used to use Union Gas but we have since switched to Esso LPG cylinders. If you refer to the Financial Highlights section below, you can see that revenue from retail LPG business declined from $24.8m in FY 2014 to $21.2m in FY 2016. As more households switched to piped gas and a highly competitive and fragmented retail market, the revenue is likely to either stagnate (stablise if you really want a more positive word from me πŸ˜‹) or continue trending downwards.

As part of its business strategy to "stop the downtrend", one of its future plan is to spend $4m of the proceeds to acquire other "dealerships" or competitors. Not sure if this is good for consumers πŸ€”

  • CNG Business

CNG vehicles are unfortunately not catching on due to lack of government incentives to do so. With increased tariffs and the cost of diesel being cheaper than CNG, the number of CNG vehicles have been shrinking over the years. See article here. A series of safety issues resulted in LTA requesting all CNG owners to send the cars for inspection and this is probably the nail in the coffin for CNG vehicles once the existing owners scrap their cars. So this is a business that would cease to exist in the coming years.  This is evidenced by the sharply declining CNG business from $19.7m in FY 2014 to $9.4m in FY 2016 (see Financial Highlights below). I will probably write off this business in 3 years.

The Company recently obtained a gas retailer license from EMA on 17 April 2017 which allows Union Gas to supply and retail pipled natural case to customers in the services and manufacturing industries in Singapore.  The Company intends to expand this to customers in F&B in 2018. The Company intends to use $1m to fund this new business. It is too early to tell if the Company will succeed in this new business line.

  • Diesel Business

This is currently not a significant part of the business and generated $5.1m in revenue last year.

Financial Highlights

Despite strong declining revenue, Union Gas is actually able to paint a nice glowing picture of increasing gross margin and profitability. Gross margin grew by 18.4% to 32.5% and net profit increased from $2.4m to 4m from FY2014 to FY2016. How in the world are they able to do this?

Let's take a deeper look.

The Company was able to show an increasing profitability over the last 3 years because it was able to "control" the cost of sales quite effectively given that the supplier is from UEC Group.  This is reflected by the declining cost of sales over the last 3 years.

In April this year, they also formalised the distributorship agreement and the pro-forma was presented. This helped to boost up the gross profits despite the declining revenue and improved the margins quite dramatically. Without seeing the books from UEC group, it is hard to determine whether this related party transaction is sustainable or whether it has been subsidized. However, let's take a look at the key assumption of the pro-forma. You can find the assumptions in Appendix 2.

The pro forma assumed the same fix rate for the last 3 years! We have no idea how this will impact FY2018 and beyond as the fix rate is only for FY2017. I think it is highly misleading to present the pro-forma financial statements here and somewhat painted a even more optimistic picture. 

Based on the historical performance, EPS is 1.98 cents for FY2016 and based on the enlarged share cap of 200m shares, the PE is 12.6x. The NAV per share will be 5.46 cents.

Dividend policy

The Company intends to distribute no less than 50% of its net profit as dividends for FY2017. Assuming a historical EPS of 1.98 cents is used, the dividend yield will be around 4%. This can be potentially higher at 6% if the Company is able to achieve a higher EPS as evidenced by its pro-forma statement.

What I like about the Company
  • Experienced management team - The founder has seen the ups and downs of the business and can probably provide sound advice to the management team. Alexis Teo, his daughter and CEO is the heir apparent with 13 years of experience. However, this savvy business man is not going to let go of its business for cheap. A picture of Alexis is below.

Some of my concerns
  • The Company is facing strong headwinds. The CNG (vehicles) and LPG business (domestic) are deteriorating as evidenced by the declining revenue over the last 3 years.
  • Scalability of business - The Company said in it may expand beyond Singapore and that there is "considerable potential to expand our offerings to household products and health products". I really don't see how this predominantly domestic player is able to scale its business know-how outside of Singapore or expand into healthcare products. Seriously?
  • The founder is selling vendor shares at IPO - I wouldn't like to see the founder cashing out in the face of challenging headwinds. The founder still holds 70% of the Company and the CEO (his daughter) holds zero at Union Gas but around 5% of UEC Group. The CEO has no stake in the game and her shareholding at the UEC Group creates potential conflict of interest everywhere! 
  • The crown jewel is still with the founder  - To be competitive in this business, you need to control the upstream (that is what the founder said himself in the interview "His earnings hit a plateau when the company exited the market. His margins became lower because of tight controls by the big boys who wanted to close the supply vacuum. I knew we had to bottle our gas," says Mr Teo, who started distributing gas under his own brand Union in 1995.". After this IPO, the founder still own Union Energy while Union Gas is just a distributorship arm that he listed. Ironically, Union Gas will not even own the trademark of Union Gas as that belongs to the UEC Group πŸ˜“. The small "saving grace" is that the Company has the right of first refusal if the bottling plant is ever sold. Why is the bottling plant not part of this IPO in the first place?
  • Related Party Transactions - It's tough trying to figure out the different related party transactions that affects Union Gas through the prospectus. There are potential conflict of interest everywhere and how they mitigate them will be critical
Fair Value

The company is being listed at a historical PER of 12x which is fair. Assuming the revenue remained the same, the pro-forma EPS of 3.06 cents can potentially be sustained for FY2017. However, i will assume a 20% decline due to the CNG business. The EPS will be 2.45 cents.

Assuming a fair value of 10-12x, the fair value is around 24 to 30 cents.

Given the headwinds, the only way it can continue to maintain the EPS is through buying cheaper gas, which i have no clue as to how to "guess it". (punt intended 😜) given that it is a real black box.

My Chilli Ratings

This is one IPO which i struggle to give a chilli rating. 

My gut feel for the IPO is that it will debut well given the positive IPO sentiments, supposedly low PE and high dividend yield. The small float of shares also made it easy for the gas and taxi tycoon to place out the shares to friends and family. Small punters should be able to get out easily at a profit.

However, for the longer run, I have a few key concerns:

  1. Union Gas is just a distributor and don't own the brand
  2. The transfer pricing is somewhat of a mystery each year and there are potential conflict of interest between UEC Group and Union Gas everywhere
  3. It is hard to buy into a Company whose fate is controlled by a company related to the key shareholder
  4. We are buying into a business where the CNG vehicles are depleting dramatically and where the LPG business is slowly being replaced by piped gas

It's probably a 2 chilli rating for the debut and 0 chilli rating for the longer run until we sort out some of the concerns mentioned above. The transfer pricing of the LPG is one area where transparency is needed and by having its own bottling plant, that conflict would have been resolved prior to the IPO.

Union Gas Straw Poll

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