Google adsense

Sunday, 31 December 2017

Singapore IPOs Tikams for 2017

2017 turned out to be active one where there were 21 IPOs on Singapore Exchange.

(source from

In terms of post market performance, Samurai and Unusal performed the best and became multi-baggers with gains in excess of 415% and 290% respectively 😫

I managed to get placement or ATM shares from 10 out the 21 IPOs. 6 of them made money with 4 making losses due to bad timing. 

2017 ended as "2nd best year" where my total gains was $27,298 and the bulk of it came from:
  • Sanli Environment $21,753
  • Kimly $5,700
  • APAC Realty $2,051
For those readers who just joined this year, you can read about my past tikams here.

Now that we have come to the end of 2017 (with a few hours more), I would like to take this opportunity to wish all readers a Happy New Year! 

Saturday, 16 December 2017

Clearbridge Health Limited

For Info only as there is no public tranche. I also caveat that i know nothing about the biotech industry. Too "genomic-ally Greek" to me...

Clearbridge Health Limited ("Clearbridge" or the "Company") is placing out 88m New Shares at $0.28 each for a listing on Catalist. There is no public offering and the Company will commence trading on SGX on 18 Dec 2017. Based on the IPO price, the market cap of the Company is $134.7m You can find the prospectus here.

Principal Business

The Company is a healthcare company with a focus on delivery of precision medicine in Asia ...🤔... and its vision is to empower clinicians and healthcare professionals to make more reliable and accurate diagnoses, provide insights to disease management and tailor personalised prevention and timely treatment programmes for patients.

It provides lab testing services, owns and operates medical centres and invest strategically in precision medical technological companies. 

Lab Testing Services

The Company currently provides lab testing services comprising clinical diagnostics as well as lifestyle and wellness management testing services. You can read more about the different services below.

Owns and Operates medical clinics

In addition, the Company owns and operates two medical clinics in Singapore and Hong Kong and has entered into a term sheet for acquiring a medical centre in Philippines. The Company intends to collaborate with local partners in Indonesia, Myanmar, India, Malaysia and the PRC.  It is adopting a data drive approach to healthcare and the deployment of diagnostics and screening tools by leveraging on its business in laboratory testing services.

Investment Merits

Let's see what the company says about itself... in terms of investment merits

Future Business and Prospects

Financial Highlights

The financials show that this is still a "start-up" company and the Company is generating revenue of less than $1m and loss making. Investors have to "believe" in the prospectus of what the Company is doing.

The NAV per share, after adjusting for the IPO, is around 13.8 cents. This is a huge premium over the issue price of 28 cents.


More than 50% of the shareholders have agreed to be locked up in one way or another, thus there wouldn't be much float post the IPO

Use of IPO Proceeds

The Company is raising money primarily to expand its medical clinics organically and through acquisitions.

What I like about the Company
  • Experienced management  - Clearbridge is led by an experienced CEO who previously ran Cordlife. 
  • "Young" industry with potential - Precision medicine is probably a young industry with high growth potential. It includes the study and analytics of one's DNA and genetics. The belief is that everyone is "made differently" and by knowing your own "genetic composition", doctors and physicians will be able to use more appropriate medication and treatment.  
  • Right demographics in Singapore - As the population in Singapore gets older, wiser and hopefully richer, they will demand a higher quality of medical treatment and the rising affluence and awareness of precision medicine will be a big boost for Clearbridge.
  • Substantial Shareholders invested at around IPO price - QED Innovate injected $32m at around 27.74 cents
Some of my concerns
  • Source and reliability of data - Genomics require a large sample of data. What the Company is doing is nothing new or ground breaking. What the Company needs is access to large and reliable databases. If the Company is able to penetrate and work closely with the local hospitals, this would be ground breaking 
  •  Can the Company break into the Asian market successfully? - For the Company to be successful in Asia, it will need to break into the Asian markets. This will not be an easy task considering how tough and unique each market in Asia is
  • The Company has not proven its earnings capabilities  - Clearbridge is still clearly not revenue generating and is loss making.
  • Future funding may dilute the value- The Company will need to raise funds in future for expansion and potentially, that may be dilutive to existing investors
  • Thin trading liquidity post listing - Post the IPO, more than 50% of shares will be under moratorium and with only 18.3% in public shareholders, liquidity is likely to be limited  
Fair value

The Company is loss making and not generating substantial revenue. I wouldn't attempt to give a fair value here.  I understand the IPO issuance is well supported by several familiar players in the marketplace (see list from placement announcement below). Coop International is a subsidiary of Bonvests Holdings while Benny Yeo is the well known face behind MM2 Asia and Unusual.

My Chilli Ratings

My chilli rating is irrelevant but i would have probably gave it a one chilli. This IPO should be well orchestrated debut. Vested.

Polling time

You can vote here.

Wednesday, 29 November 2017

Cromwell European REIT - Balloting Resultsb

Cromwell European REIT ("CEREIT" or "Crownwell") announced that its public offering was 3.1x subscribed. The over-allotment option was exercised as well.

Investors who applied for 100,000 shares has a 60% of being allotted 63,000 units. I didn't apply for the Cromwell Shares. 

Good luck to those who were allotted some shares. The weakness in Euro against SGD may result in some weakness on debut given the exchange rate that was fixed for the IPO was $1.6091. 

Happy Cromwelling...

No Signboard Holdings Ltd - Balloting Results

No Signboard Holdings Ltd ("No Signboard" or the "Company") announced that its IPO of 65,734,500 shares received overwhelming response from investors.

At the close of IPO, the public tranche of 2.5m shares was 268.6x subscribed.

Commenting on the strong support for the IPO, Mr Sam Lim (林荣森), Executive Chairman and Chief Executive Officer of No Signboard said, "We are very encouraged by the overwhelming response to our IPO from cornerstone investors, institutional investors and the public, as they clearly recognise our growth potential. We have had over 30 successful years in the F&B business and to bring the Group to the next level, with the aim of delivering significant growth in shareholders' value, we will focus on our expansion roadmap that includes launching a new casual dining concept, expanding our premium beer operations and venturing into the ready meal business." 


Investors who applied for any number of shares has a 1:9 chance of being allotted. That is a pretty low probability.

Mr IPO applied for a lot of shares but was unsuccessful.... 

Good luck to those who managed to get some shares! 😀

Sunday, 26 November 2017

Cromwell European REIT

Cromwell European Real Estate Investment Trust ("Cromwell REIT" or "CEREIT" or the "Trust") is offering 428.535m units (subject to over-allotment option) at €0.55 per unit. 392.171m units will be offered via placement with the balance 36.364m units open for the public. You can download the prospectus here.

The IPO will close on 28 Nov 2017 at 12pm. Investors can apply from the ATM and Internet banking website of participating banks. According to the prospectus (page 47), investors will pay around S$0.885 per unit, based on the fixed exchange rate of €1:S$1.6091 

This is the second time which Cromwell is trying to list the Trust, after aborting the previous attempt in Sep 2017. My previous write up on the IPO is here. The two key differences in the relaunch is the removal of the properties in Poland and the doubling of stake by its Sponsor from 12% to over 30%. You can read more about the makeover here.

Principal Activities

Cromwell REIT is the first Singapore REIT with a diversified Pan-European portfolio with a focus on office and light industrial/logistics sectors across 5 countries in Europe. CEREIT is sponsored by Cromwell Property Group ("Sponsor") headquartered in Brisbane, Australia.  

The stated objectives of CEREIT is to provide unitholders with regular and stable distributions and achieve long term growth in DPU and NAV per unit. This will be achieved primarily through active asset management and enhancement, acquisition of assets and adopting prudent capital management and best practices.

IPO Portfolio

The portfolio includes 74 properties in Denmark, France, Germany, Italy and Netherlands and is valued at €1,354 million. The properties can be classified almost equally between office and industrial/logistics. No single property account for more than 11.7% of the appraised value.

According to the prospectus, each property will be appraised by two independent valuations and the higher of the two valuations will be taken. The final purchase price of  €1,323 million is at a 2.3% discount to its appraised value. If i take the lower of the two by types of properties such as office, industries and others, my valuation for portfolio will be around €1,309 million

The portfolio is spread across 5 countries in Europe but Netherlands, Italy and France took up 86.5% of the value with the balance in Germany and Denmark. The properties has a long and well-staggered lease expiry profile.

Financial Statements

According to the pro forma statement, the NAV per unit (see highlighted above) is €0.53 per unit. This represents a price to book ratio of 1.038x. According to page 103 on capitalisation and indebtedness, CEREIT will have a leverage ratio of 36.8%. 58% of the debt will have to be refinanced in 2020. 

The above the the projections for the next 2 years and the projected yield is 7.8% for 2018 and 8% for 2019. 

Use of Proceeds

The bulk of the IPO proceeds will be used to pay for the properties and paying for the transaction costs.

Projected Yield

The projected yield of 7.8% in EUR terms for projection year 2018 seemed attractive, with the Sponsor forecasting that the yield will grow to 8% in projection year 2019. 

The first distribution will be for the period from listing till 30 June 2018 with the distribution paid before 28 Sep 2018. Subsequent distributions will take place on a semi-annual basis. Investors can elect to receive the distributions in EUR or SGD.


Separate from the offering, Cerberus Singapore (an affiliate of the vendor of certain properties), Hillsboro Capital, Mr Gordon Tang and Mrs Celine Tang (from Sing Haiyi) have entered into cornerstone agreement to subscribe up to 581.819m units. Only Cerberus Singapore are subjected to a lock-up whereas Hillsboro and Mr and Mrs Tang are not.

As you can see from the table below, the Sponsor, together with the selected Cornerstone investors will hold the bulk of the IPO and the investing public will hold about 30% of the REIT 

What I like about CREIT
  • Diversified Portfolio with long WALE - the portfolio of 74 properties is highly diversified geographically in 5 countries and no single property accounts for more than 12% of the portfolio value. The long lease profile of 4.9 years weighted average lease expiry and high quality tenant base means that the recurring income will be stable 
  • European economy seemed to be turning the corner - Following the shock Brexit, the European economy seemed to be recovering. I spoke to several global fund managers and interestingly, they are more bullish on Europe than on USA. This could be one way of gaining exposure to the European region. The impact of Brexit would also mean that more companies will relocate out from London to other European cities
  • Freehold properties with slight upside - 88% of the properties are predominantly freehold and the occupancy rate is around 87.7%. The occupancy is expected to improve to 90% for PY 2018 and 92.6% for PY 2019
  • Stronger alignment of interest - Compared to the previous prospectus, there is now a much stronger alignment of interest as the Sponsor took up a stake of approximately 35.8%
  • Experienced sponsor with long track record in Europe - The Sponsor has a 15 year track record in Europe with 190 employees and 20 offices in 13 countries.  
Some of my concerns
  • No economy of scale - The well diversified properties meant that it is hard to achieve economies of scale as the properties are spread out over different areas of the continent
  • Quality of assets - While the properties are diversified, the properties are not the "grade A" type. It may not be able to held up its rental as well during periods of downturn 
  • Continued doldrums in European countries  - Europe may continue to chug along with no real growth and the rental rates may suffer
Peer Valuation

The closest peer is frankly IREIT global even though it has only a few German properties. At the date of this write up, IREIT is trading at 7.656% yield and a price to book of 1.11x.

Assuming Cromwell REIT trades up to either of this metrics, it will imply a fair value range of €0.56 to €0.59 (before accounting for conversion to SGD) 

My Chilli Ratings

Consistent with my other chilli ratings for REITs, you will have to ask yourself if this counter fits into your retirement portfolio and invest for the longer term. 

My gut feel is that the downsized IPO will be easier to absorb by the market but this is not a counter for flipping. On this end, i did not ask for any placement allocation, but i may try for some at the ATM as i will save on the placement fees. 

It is a one chilli rating for me.

Polling time - Are you going to subscribe for Cromwell European REIT

You can vote here

No Signboard Holdings Ltd

No Signboard Holdings Ltd ("No Signboard" or the "Company") is offering 65,734,500 shares for its IPO on Catalist, of which the vendor is selling 15,734,500 New Shares and 50,000,000 Vendor Shares. The bulk of the offering are via placement with only 2.5m shares are available for retail investors via the ATM. The offering price values No Signboard at $129.5m.

The IPO will close on 28 Nov 2017 at 12pm. You can find a copy of the prospectus here.

Principal Business

It is ironic that 无招牌 or No Signboard is actually a brand now. The restaurant was founded by Madam Ong Kim Hoi and they could not even afford a proper sign and just painted a plank and patrons soon referred to it as "无招牌". See the Straits Time article here. You can also read about how they started and their early struggles as well as their expensive fancy cars here.

I was a fan and patron of their "white pepper crabs" at Oasis (hmm that reveal my age) and subsequently from their Geylang outlet. However, that has recently been displaced by the white pepper crab from JB Ah Meng.  

The Company currently owns and operates 3 restaurants under the "No Signboard Seafood" brand in Esplanade, Vivocity and The Central @ Clarke Quay with one restaurant under a franchise agreement. Hmm.... i never realise the one at Geylang is under a franchise?! Let's see if we can find out more later 🤔 

There are two lesser known business lines:
  • In-house Draft Denmark brand of premium beers sold at 150 points of sale in Singapore
  • Powered by No Signboard ready to eat meals intended for distribution via vending machines

Future Business Plans

The Company listed its future plans as follows:
  • Establish a casual dining concept targeting younger and family oriented consumers with two restaurants coming on in 2H2018 
  • Develop the beer business by expanding its range of beers and setting up its own brewery
  • Distribute its "ready meals" through vending machines and supermarkets
  • Expand through franchising, acquisitions, joint ventures of strategic alliances

Financial Highlights

The revenue has been stagnant over the last 2 years and the 9M 2017 revenue indicate the trend is likely to continue. However, the profit margins has been improving during this period to 38.7% for 9M2017.

Based on the historical pro-forma EPS of 1.52 cents, the Company is being listed at a fully diluted PER of 18.4x. Assuming profit level for FY 2017 remained at 1.79 Singapore cents (using 9M 2017 divide by 3 x 4), the PER will be 15.6x and the dividend yield will be 1.9% (30% x 1.79 divide by 28 cents).


Investors should know that the NAV per share of the company post listing is 4.90 cents (versus the IPO price of 28 cents). As such, they are buying this business at a premium of 471.4% (see prospectus page 32 and page 60) or price to book of around 5.7x


The Company also placed out 59,265,500 Cornerstone Shares (new shares). Cornerstone investors included :
Hedge Fund - Asian Opportunities Absolute Return Master Fund
Wealthy individuals - Goi Kok Ming (son of the Popiah King, Sam Goi) and David Lam (founder of Goodpack)
Asset Managers - Lion Global, JP Morgan Asset Managment, LB Asset Management and
Family Offices - Qilin Asset Management and OSC Invesments Capital. 

Cornerstone investors will control 12.8%, with the Lim Siblings taking 73% and the public holding the remaining 14.2%.

As you can tell from the shareholders list, this issuance will be tightly controlled. Given that it has been placed out well with public holders forming only a small % of the offering, the share price is likely to debut well.

Use of Proceeds

What I like about the Company

  • Well known brand - The No Signboard Seafood brand is well known for its white pepper crabs and delicious seafood. The Company is currently using this "brand" to expand into quick meals
  • Highly cash flow generative - This is a highly cashflow generative business with $8m in FY2015 and $7.3m in FY2016. This high cashflow will allow the Company to expand into other business lines
  • Experienced management team - The team is led by Sam Lim, the CEO, and being in the F&B line for 20 years, he should have weathered through the different economic cycles. 
  • The Company is almost debt free - Post the IPO, the Company will have $24m cash and about $1.1m of debt. This is probably due to the high cash flow generated by the operations 
  • Intention to pay dividends - The Company also intends to distribute at least 30% of its net profit after tax as dividends in 2018 and 2019 to shareholders
  • Strong cornerstone investors - One good thing about this IPO is there are no pre-IPO investors cashing out and all the other cornerstone and directors are coming in at the same IPO price. The cornerstone investors can help ensure that the price stays "above water" by limiting the free float in the market
Some of my concerns
  • Declining revenue and stagnating profitability - The revenue has been declining for the last 3 years with profitability fluctuating between $6.5m to $9m. The future prospects doesn't seem exciting. Other than the new causal dining concept, it is tough to visualise at this juncture, how the beer and ready-meal business is able to scale up significantly. As you have seen from the results, the Company has not been able to expand beyond its "No Signboard Seafood" heritage 
  • Owners are cashing out - The owners are cashing out of this IPO. While some may see this as "giving investors" a chance to invest in the business, the fact of the matter is that the owners are selling out at a high valuation and "de-risking" themselves while holding on to a 73% stake. Investors are now taking on the risk of expanding the business into beer and ready meals segment.
  • Overseas expansion failures - The Company tried to expand to Hong Kong, Jakarta and Macau and the experiences had been humbling. They have not been able to crack the markets beyond Singapore. I hope the lessons learnt from these experiences will come in useful when they use the shareholders' funds to expand overseas but the prior forays has been less than encouraging
  • Future prospects is unclear - The beer business is newly acquired and the ready-meals business are untested. As you can see from the pro forma statements, acquiring the beer business has been dilutive to its earnings. I am also not sure why the Company is venturing into beer brewing business as it is highly competitive and dominated by a few big brands that distribute brands such as Heneiken and Tiger
  • Other conflict of interest - Besides the "loss of crown jewel", the other potential conflict of interest is the Ma2 Shop that operates vending machines selling ready meals in Singapore. The vendor has a 51% stake in Ma2! (see the write up on Mattar Road No Signboard below)
  • Unproven track record of OCBC - It is surprising to see OCBC back in the IPO game as they have not been able to gain any meaningful toe-hold into this business. Let's see how No Signboard perform in the coming months before we decide if OCBC is back in the IPO business (For avoidance of doubt - i was referring to OCBC being the sole lead in the Catalist segment) 
Why is the "Crown Jewel" - Mattar Road No Signboard Seafood Restaurant excluded?
  • Loss of crown jewel - I was frankly quite "disturbed" to discover that the restaurant in Geylang is actually owned by the relatives of the founders. This is probably one of the most profitable outlets under No Signboard. The franchise arrangement is new as it was only established on 1 Nov 2017. The franchise fee is only $12,000 a month with no revenue sharing. I will be appalled if No Signboard intend to build up its franchise model using the current arrangement. I would also have preferred they cleaned up this arrangement or acquire the Geylang outlet prior to its IPO. The most "funny" part is that the Company was then "granted" a license to use the premises of Mattar Road No Signboard Seafood Restaurant at $12,000 per month! That effectively means that franchised outlet is not paying any franchise fee at all... now it leaves a big question mark in my head!! Assuming each outlet produces a net profit of at least $2.6m (and my gut feel is that the Geylang outlet is one of the most profitable outlet), it effectively allows the crown jewel to enjoy the benefits of the "brand" without having to pay any royalty fees. The fact that the Company has the right of first refusal to future sale of this outlet is of no comfort to me! Can the Independent directors address this concern please? 
Peer Valuation

RE&S Holdings debut with a bang at 35.5 cents, opening at 61% above the issuance price of 22 cents. It has since dropped down to 30 cents. Can No Signboard do the same?

The closest peer to me in the same line of business is Jumbo. Jumbo is famous for its chilli crab. Perhaps the next one to list is the famous black pepper crab at Joo Chiat? 😂

Assuming it trades to Jumbo valuation of around 18-22x PE, the fair value range will be between 32 cents to 40 cents. 

My Chilli Rating

From my write up, you will know that i used to like the white pepper crab so sentimental value do play a small part. I like the "almost" debt free business that is highly cash flow generative. A few big questions marks for me will be the ability of No Signboard to scale up its business beyond the 3 restaurants. The previous venture overseas has been a disaster! I also have a big question mark as to why the Mattar Road No Signboard was "excluded" and being allowed to use the brand for free with no franchise fee and no revenue sharing at all. 

As such, i will give it a 2 chilli rating for the debut and i am going to deduct one chilli for the longer term due to the perceived lack of governance on the Mattar Road outlet and the poor track record of expanding its business beyond the local shores.

Happy White Peppering 

Polling Time - Are you going to eat the White Pepper Crabs?

You can do the polling here

Thursday, 23 November 2017

MindChamps Preschool Limited - Balloting Results

MindChamps Preschool Limited announced that its overall IPO was 21.4x subscribed and the public tranche was 83x subscribed. Other than the Cornerstone Investors, Institutional investors who has been allotted 5% of more of the Offering Shares include:
  • ICH Capital Pte Ltd
  • Island Asset Management Pte Ltd
  • JF Asset Management Limited
  • SUTL Holdings Pte Ltd
Mr. David Chiem Phu An, Founder CEO and Executive Chairman of MindChamps PreSchool
Limited said: "The positive demand from both institutional and retail investors is a strong testament to MindChamps PreSchool's unique investment proposition and cutting-edge 3-Mind education model. Building on our leading position as the largest operator and franchisor of premium preschools centres in Singapore, we plan to strengthen and expand our presence overseas to take the MindChamps movement from Singapore to the world and capture the growth of the early childhood education industry globally."

"The successful listing is an important milestone in our efforts to empower more students with the values, mindset and skills to achieve their full potential in life. Going forward, we will continue to uphold and maintain our reputation for excellence and  deliver long-term value to all our stakeholders - from students, to parents and shareholders alike."

Public Offering Balloting Table

The balloting table is presented below. There are less retail friendly and reward the "rich", where if you apply for 1m shares, you will be guaranteed of 28,000 shares. Investors who applied for 1 to 19,000 shares have a 10% chance.

Mr. IPO has a few shares from placement but wasn't "lucky enough" for its ATM application...

Good luck to those who managed to get some! 

Happy Mindchamping...

Tuesday, 21 November 2017

RE&S Holdings Limited - Balloting Results

RE&S Holdings Limited ("RE&S" or the "Company") received strong investor interest for IPO where 32m shares were 37.8x subscribed.

Other than Heliconia, the cornerstone investor who subscribed for 16m shares, investors who were allotted 5% of shares include:

Mr Hiroshi Tatara, Founder, Executive Director and President of RE&S said, "We are heartened by the overwhelming response to our IPO, which represents investors' confidence in RE&S' track record, diversified portfolio of unique and distinct brands, our infrastructure which includes our corporate headquarters and central kitchen and positive outlook for the F&B industry in Singapore. We are glad that with our listing, many of our stakeholders, including the public, are now able to participate in RE&S' growth."

Added Mr John Yek (葉鸿烈), Executive Director and CEO of RE&S: "The listing will not only enlarge our capital base for continued expansion of our business, it will also enhance our visibility for potential opportunities to grow inorganically as we continue to deliver authentic quality Japanese cuisine and innovative dining experiences to our customers. As a listed company, we are better placed to further grow our business and we look forward to building a sustainable enterprise for the benefit of our stakeholders."

Investors who applied for the public offering has a 10% chance of getting the shares.

This is an IPO where all the investors has an equal chance (10%) of getting the shares regardless of the number of shares applied! 

Investors who applied for 100,000 shares will have a 10% chance of being allotted 7,000 shares. Good luck to those who managed to get some shares.

Happy RE&Sing

Sunday, 19 November 2017

MindCamps Preschool Limited

MindChamps Preschool Limited ("MindChamps" or the "Company") is offering 30,449,600 shares at $0.83 per share in which 2m shares will be for the public and the balance for placement. The market cap of the Company will be $200.5m. The IPO will be subject to over-allotment option. Separate from the offering, the Company also entered into an agreement to sell 28,930,800 shares to Cornerstone Investors.

The IPO application will close on 22 Nov 2017 at 12pm and you can start trading on 24 Nov 2017. You can apply for the shares at the ATM and internet banking platforms of DBS/POSB, OCBC and UOB, as well as the mobile app of DBS. You can find the prospectus here.

Principal Activities

The Company is currently the largest operator and franchisor of premium range preschool centres in Singapore and currently operates 6 company-owned-company-operated ("COCO") preschool centres, 30 franchisee-owned-franchisee-operated ("FOFO") preschool centres and 8 FOFO reading and writing centres in Singapore.
(Note: Premium pre school child care centres charges > >$1,700 per month for a 5-day week or 5.5 day week full day programme)

The Company has also developed a franchise model overseas, where it has 4 COCO and 2 FOFO centres in Australia, one FOFO Centre in UAE and 3 FOFO centres in the Philippines. 

Mindchamps is the only preschool operator globally to nurture children using Champion Mindset, an intellectual property owned by MindChamps that was researched by award-winning neuroscientist, Professor Emeritus Allan Snyder FRS. 

According to the prospectus, the curriculum is the result of over a decade of research and development in the 4 domains of early childhood education, neuroscience, child psychology and theatre. 

The Company operates in 3 business segments of education, franchise and others as presented below:

Financial Performance

The revenue has been growing at a CAGR of 30% and has grown from $10.8m in FY2014 to $18.4m in FY2016. The revenue is likely to continue growing as the Company steps up its franchising arrangements globally. Revenue continue to grow from $8.8m to $9.2m in 6M2017

While revenue has increased, net profit has also grown in tandem with improving margins. The net profit hit a high of $5.8m in FY 2016. However, it seemed like 6M 2017 profitability has taken a hit. Let's see if we can find out more.

According to the prospectu (page 82 and 83), the reason for the drop in net profit was because the 6M 2017 revenue is mainly due to recurring revenue stream from its operations and does not enjoy any master franchise license fees that occurred in 6M 2016. This will probably improve in 2018 when the master franchise agreements are finalised with China First Capital Group and Hillhouse.

Based on the adjusted EPS of 2.23 Singapore cents for FY 2016, the Company is listing at a historical PER of 37x! Considering the drop in profitability in 6M2017, unless the 2nd half picked up significantly, the performance is unlikely to beat that of FY2016. The only positive takeaway is that the recurring revenue of the Company has been trending upwards, while the non-recurring revenue can be quite erratic.

The Company also prepared a pro forma financial statements assuming it has acquire 80% equity interest in MindChamps Serangoon, 75% of MindChamps Zhongshan Park, Australia acquisition, 49% in MindChamps Changi and 6.42% of MindChamps PreSchool Franchise as part of its listing as shown below.

Based on the pro forma financials and the enlarged share capital of 241.6m shares, the EPS for FY2016 would be 2.58 Singapore cents. This would translate into a listing PER of 32x.

According to the balance sheet as of 30 June 2017, the Company has an intangible assets of $21.8m and bank borrowing of $11.4m, shareholders' equity of $4.54m. After accounting for the IPO proceeds, the shareholders equity improved to $54.3m with cash of $49m and debt of $0.66m. See pro forma below.

The adjusted NAV per share of MindChamps is $0.218 versus its IPO price of $0.83, implying a price to book of 3.8x.

Use of Proceeds

The Company intends to use proceeds to repay Acquisition Loan and to fund expansion plans.

Dividend Policy

The Company will keep all the profits generated for FY2017 for its operations but intends to distribute at least 40% of its net profit after tax generated in FY2018 as dividends.

What I like about the Company
  • Largest operator and franchisor of premium range preschool centres in Singapore - You need a strong base to grow and Singapore's pursuit for high quality education forms a good foundation in which the Company can then expand regionally and globally. I like the ambitious target which the Company set for itself. It is not just Asia and China, it wants to conquer the world! (of course whether they can achieve it is another story but at least they show strong ambition). See the potential key strategic markets for global expansion below

  • Strong intellectual property - The preschool owns its own IP and "MindChamps" curriculum to nurture our future generation. They are in control of their own destiny if the curriculum is proven to be of real value, parents would be most willing to spend on their children's education
  • Scalable business model - The franchisee model is highly scalable once you own the intellectual property that is well sought after. The Company has shown that it was able to establish franchisee operations in Singapore, Australia and UAE. The model can be replicated to a more homogeneous country like China as well as United States where quality preschools are very expensive. The franchising model of charing a fixed % of revenue allows high financial returns without the capex! 
  • Clear growth path - The number of centres has grown from 26 in FY2014 to 54 at the date of the prospectus. According to the prospectus, there are 35 FOFO centres yet to be established and some be commencing operations in 1Q 2018. There are clear growth path outlined for the different regions. The Company has also signed MOUs to grow globally.
  • Reputable partners for Global Expansion - MindChamps have signed exclusive business partnership with China First Capital Group and Hillhouse Capital. The parties intend to operate preschools and kindergartens under the MindChamps brand in China, Hong Kong, Australia and United States. These business partners also invested as cornerstone investors in MindChamps and there is strong alignment of interest
  • Blue Chip cornerstone investors - The cornerstone investors are of excellent quality. Please see more detailed analysis on the cornerstone investors below
  • Infection point - This Company is in an inflection point where it needs capital to grow and a listing will help achieve both credibility and provide the funds for which it can execute its business plans. The listing will allow it to grow faster through mergers and acquisitions
  • Competent management, well connected Board and world Class Advisory Board - The management and board comprise competent individuals and the founder, David Chiem, surrounded himself with an esteemed advisory board who will help "brand" the Company and provide knowledge and credentials to the Company. The advisory board is presented below.

Some of my Concerns
  • Loss of IP / Rise of Competition - The Intellectual Property developed by the Company can be "stolen" from unscrupulous franchisees and re-marketed by them. This would be one of the major risk and the mitigant will probably be careful scrutiny by the Company and operating in jurisdictions with known legal recourse (not sure about China). Also disclosed in the prospectus, the Company is currently in legal lawsuit in Australia for breach of term sheet. (not sure why a term sheet can be breached as it is usually non-binding in nature).
  • Partnerships fail to work - Other than loss of IP, the biggest risk is execution risk where partnerships with CFCG and Hillhouse fail to work out and the expansion plans are derailed, especially in the China or elsewhere. The mitigant is that if the partnership fail to work, then the "cornerstone" investments made by CFCG and Hillhouse will suffer as well. There is at least some alignment here. 
  • Intervention by government for preschool segment in Singapore  - Government intends to raise the quality and affordability of preschools here and public spending in this area will hit $1.7 billion by 2022. While MindChamps target the higher end segment, the availability of better quality preschools at more affordable pricing may result in competition and pricing pressure. The preschool segment is currently not regulated or mandated by government. If the pre-school segment is regulated, it will likely kill off all the premium schools in this sector
  • High valuation - The IPO valuation is as premium as its school fees. It doesn't come "cheap". Investors are paying a premium for the business. Is it still a value buy?  The cornerstone investors seemed to think so
  • Competition - This is a fragmented market with many competitors, including EtonHouse, Pat's Schoolhouse, Brigton Montessori etc. While MindChamps currently has the largest market share, it does not mean the market share can be maintained in future
  • Non big 4 auditor - The auditor is Nexia TS  Public Accounting Corporation. While not belittling the smaller accounting firm, i would prefer to see a more established auditor with more resources as the Company scale up its operations globally

Cornerstone Investors

Let me spend a bit more time on the cornerstone investors today as it forms the key part of my investment decision and chilli ratings.

China First Capital Group is listed on HKSE (ticker code 1269) with a market cap of ~ USD 2.3b. It has a few business lines and since 2016, expanded to education and schooling services business both within China and abroad. It is currently trading at lofty valuation on the HKSE and will be a "natural acquirer" if the founders of MindChamps decide to exit the business in future. You can find some of their investments in this space here.

Hillhouse Capital Group was founded by Zhang Lei and his own life story has been a very interesting journey. He is a highly respected both in China and abroad and set up Hillhouse in 2005 with the backing of Yale Endowment. Fast forward to today, Hillhouse is a well known name in both the public and private equity world . You can read more about his speeches here and his investment in MindChamps is a good endorsement of the the Company and its future business. Hillhouse invests with a long-term time horizon and employs a fundamental, bottoms-up approach. The funds managed by Hillhouse has generated good returns to its investors.

Target Asset Management was established in 1996 and practise value investing strategy. According to Motley Fool Singapore, Target Asset Management's founder, Teng Ngiek Lian is one of the 4 great investors in Singapore which you need to know. You can find more about Target's investment philosophy here

While I wouldn't call Singapore Press Holdings a great investor, they have showed conviction by increasing its stake in MindChamps. They first invested $12m in MindChamps in 2014 and they followed up with an additional 4.84% for the IPO.  SPH now owns about 26.84% of MindChamps and will own about 20% post IPO.

With the ringing endorsement by 4 different parties and some with "value investing angle", it seemed like this is an investment which you can hold for the long term and their presence is of great value to me.


From the table above, the founders (husband and wife) continue to hold about 51.65% of the Company, with SPH owning 20%, the 3 cornerstone investors holding 11.97% and the public holding the remaining 13.35%. 

Considering the founders are locked up and the other investors are long term investors, the free float will be tightly controlled with only 13.35% of the share capital in public hands.

Peer Valuation

The valuation of MindChamps is expensive by any historical metrics! I frankly don't know how to "value" this company since i am not privy to its future projections but the "growth" must be exciting enough for the cornerstone investors to invest in this. The presence of Target Asset Management is particularly "disturbing" given the perceived lack of "value" in the IPO valuation. 🤔 Is there something of value which we don't know? 

My Chilli Ratings

I like the sector and the growth projectory presented by MindChamps. It seemed like it is at an inflection point where growth and profitability will pick up in 2018 when the Company scales up globally. The key risk will be execution. Can the Company execute its growth story? The 3 cornerstone investors and SPH seemed to think so, should we take a leap of faith? 

I will give it a one chilli rating for the IPO launch given the high valuation but a 2 chilli for the longer term. I am willing to take a bet on its longer term prospects given the quality of the cornerstone investors.

Given the small float, the IPO should stay above water if the placement is done well. I will subscribe for some shares and hold it for the longer term. 

Will you subscribe for the IPO?

Please take the poll here.

Google Analytics