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Sunday, 18 March 2018

Ayondo Limited

Ayondo Limited (“Ayondo” or the "Company" or the “Group”) is offering 80.77m shared for a listing on Catalist, of which 8.9m shares will be for the public and the balance 71.9m shares via placement. The IPO price is 26 cents and that translate into a market cap of $130.7 million. The offer will close on 22 March at 12pm and starts trading on 26 March 2018 at 9am.

Principle Business 

Ayondo is the first “pure play” Fintech Company to be listed on SGX and considers itself to be one of the Fintech pioneers in Europe that tried to combine trading and investment with elements of social media. "ayondo at a glance" below presents the current value proposition for investors.

Ayondo has subsidiaries in UK, Germany with offices in Singapore, Spain and Switzerland, offering innovative trading and investment solutions for retail and institutional customers.

The services included provided by ayondo include:

• Social Trading
• Self-directed trading
• Casual Trading

Social Trading 

Social trading basically allows ordinary investors to mimic the trades of top traders via the “WeTrade” platform. Top performing traders will be incentivized to build up its followers as they will be paid when followers follow the trades.

According to the prospectus, social trading represents a fast-growing innovation, with an average growth rate of 213%.

Self-directed Trading

The Group also offers CFD and spread bet trading over a wide range of markets, including Forex, Commodities, Treasuries, Cryptocurrencies and Shares.

Casual Trading

This has more of a social element - educating and empowering customers and prospects.

The revenue breakdown by the customer profile is presented below.

Financial Highlights

While revenue has been growing strongly, it started from a low base and in absolute numbers, it is still low and has not reached a level of scale yet. While the gross margin is high, the operating expenses are high too and that results in losses over the last 3 years

It is interesting that the revenue for 9M2017 has fallen despite an increase in active clients and client transactions. According to an article in Singapore Edge, the CEO Lempka attributed the decline in revenue to "almost no volatility in the market in 2017" where top traders traded less than before while the "first two months of 2018 was a complete different picture".

Potential Prospects

The Company listed its prospects in the prospectus as above. You should evaluate for yourself whether you agree or "buy into" the theory to decide if you should invest or trade in this IPO.

Use of proceeds

The Company is raising funds for the above item as well as using $8.5m to repay loans. The loans included interest on the convertible bonds as well as shareholder loans. Why aren't the shareholder's loan converted to shares for the IPO but repaid through the proceeds instead?

What I like about the Company

  • Directors are supporting the IPO - All the 3 independent directors subscribed for the shares ranging from 100,000 (Lam Shiao Ning), 150,000 (Foong Daw Ching) to 750,000 (Chan Heng Toong)
  • Provides disruption to the fund management industry and incentivise traders to share their trades and set up their track record in a transparent manner - While these traders can potentially be "paper trading", I have always wanted to call "bluff" to many forummers who "boast" about their track record and profitability. The ability to let traders share their trades, establish a real-time track record while earning some fees and not worry about the "middle and back office" functions is great. It allows traders to continue focusing on what they are good at. There is even a "career path" for top traders on this platform
  • Ability to attract more fintech to list here - SGX has no hinterland and is probably struggling to attract companies to list here. The ability to attract these fintech companies is good for the market development and ayondo is a good start but may come at a price
  • Award winning platform -  The Company has garnered some 19 awards but i have not done any due diligence on how "prestigious" these awards are

Some of my concerns 
  • Social trading while innovative is threading into regulated arena - The ability of being able to "mimic" trades of top traders under the guise of social trading may cause the traders to be construed as "engaging in fund management activities" in Singapore. This is a "no-no" in Singapore unless you are properly licensed. Similar in other countries, such activities can be highly regulated and the risk of the Company flouting the rules can be high. Assuming you have a "top" trader that caused retail investors to lose a lot of money, that will certainly invite unwanted regulators' attention. Similar if a trader has too many followers and the calls he made can result in moving the markets, the regulators will also be very concerned as well
  • Brokerage business is highly competitive and cut throat  - In many banks, brokerage houses is a "money losing business" due to the advancement of technology and falling margins for brokerage fees. For example DBS Bank has been subsidising DBS Vickers for quite a while now, and traditional brokerage houses such as Kim Eng, CIMB, Lim and Tan etc has been consolidating and combing their operations as a result of disruptions by other players such as Saxo Bank. This is a trend not just locally but globally as well. It seems quite challenging for me to see how ayono can 'cream' any more profits from an industry that is still reeling from disruptions by technology
  • Company is still loss making with no visible timing on profitability - While you can argue that ayondo is now investing for growth and scale, the fact is that ayondo is still losing millions in CHF (Swiss Francs) for FY2015, FY2016 and likely FY2017. Personally i am clueless what is the "break-even" point going forward and the "stickiness" of the platform to its users. Is it based on the number of users on its platform or is it the opening up of new markets? According to the prospectus, the Company is expected to remain unprofitable and may require additional financing in future for expansion
  • Some shareholders loans not converted to shares - Some of the shareholders loans are being repaid by the IPO proceeds. If these shareholders have "confidence" in the Company, they should be converting the loans and interest into IPO shares instead of cash repayment (see page 63)          
  • Shareholders are too broadly held - The shares are held in many hands of pre-ipo investors and private funds such as Luminor. These investors are financial investors and not there for the long term. The listing provides an avenue of exit for their investments once the lock-up is over. The average cost per share of these investors are around 17 Singapore cents, versus the 26 Singapore cents IPO price 
  • Competitors are plenty in the different segments -  There are many competitors in the social trading space such as eToro and Zulutrade (refer to list on page 175) and self-directed trading such as CMC Markets, IG, Saxo Bank. I am not very sure how scalable a social trading platform will be in the different markets
  • Management is very well paid for a start-up  - Thomas, Robert have been drawing compensation between $250,001 to $500,000 per annum for the last 3 years and Edward and Rick will be in the same band for FY2017. Pretty high compensation payroll for a start up, not to mention the options to be granted (see page 206 and 207 of the prospectus). Robert's annual salary can also move up if revenue (not profitability) hits CHF 65m for year ending 31 Dec 2018 and CHF 130m for year ending 31 Dec 2019 (page 217), not to mention profit-sharing if the company is profitable. I have to say that these are "stretched targets" and it will definitely be something if the Company can achieve these revenue targets in the next few years


I have no idea how to value this loss making company trading a huge premium to NAV. This is definitely not a "value-investing" buy.  You can trade it for all you want but it is too challenging or early to say it will become a viable business. As it is, the Company is still cash flow negative. The Company will continue to burn cash for marketing and attracting top traders and users to its platform as it scale up its business.

Chilli Ratings

Coming to the most exciting part - My chilling ratings will be of interest to you, cos i hope you are not confused at the end of it. I am confused myself πŸ˜‚

Fundamentally, it is difficult to give it any chilli for reasons i have outlined above until we see the Company gains traction in either revenue or subscriber numbers. My feedback from the ground (i.e. people in the know) is mixed. Investors like the story but have some difficulty valuing the company. So long term wise, it is a zero chilli for me, invest or buy only if you like the prospects of the Company.

Short term wise for the IPO punting, it is a 2 chilli rating for me. One chili in support for the first fintech listing and for giving retail investors a chance to subscribe plus one additional chilli because the book runner behind the placement has a good track record. I have always gave him a 2 or 3 chilli ratings in the past and he always delivered. πŸ˜…

I am not vested from placement but may try some for the ATM just for fun... happy ayondoing! Do remember its a hit and run...

Strawpoll - Are you going to subscribe for Ayondo IPO ?

You can participate in the polling here

Thursday, 15 February 2018

Seasons Greetings - Happy Chinese New Year !

2018 is the year of the Earth Dog and according to this website, this are the famous personality dogs πŸ˜‚ , interesting to see two famous singers, Madonna and Michael Jackson both "earth dogs":

The local IPO market was originally off to a good start in 2018 . . . but the recent market volatility probably shut the IPO window for now, and when it will re-open will depend  on how US markets pan out in the next few weeks. 

Now that we have going to have a few days off, here's wishing all readers a Happy Chinese New Year and have some time off to Give, Rest, Gamble and Eat (repeat) during this period but don't forget to spend some time with your loved ones and plan for your financial well being. Happy ζ—Ίζ—Ί year ! 

Saturday, 27 January 2018

LY Corporation Limited

LY Corporation Limited ("LY Corporation" or the "Company") is placing out 75.848m shares comprising 61.174m new shares and 14.674m vendor shares at $0.26 each. There is no public tranche, as such, providing little motivation for me to review it ...πŸ’€ The IPO will close on 29 Jan 2018 at 12pm and commences trading on 31 Jan 2018. The market cap will be S$127m.  

Principal Business

The Company was started by Tan Kwee Chai in 1976 with 8 employees more than 40 years ago and has since grown to a company with more than 1,000 employees. It has become one of Malaysia's leading manufacturers and exporters of wooden bedroom furniture. As of 15 Dec 2017, the Company operates 15 factories and warehouses and sold its products to overseas dealers.

The Company manufactures quite a wide array of bedroom furniture and you can see some of the products below. You can also find out more about the history and its products from their website here.

Competitive Strengths

This is what the Company says about itself in the prospectus... i will cut and paste it below.

Financial Highlights

You can see from the audited figures that the revenue and profits of the Company is pretty stable. Using the latest exchange rate of 1S$ to 3MYR (for ease of calculation), the revenue for FY 2016 was S$95.8m and the EPS based on the enlarged share capital was 2.97 cents. 

Assuming 2017 revenue grow by 17% (based on 1H2017 growth) and net margin drops to 12%, the revenue will be = 287,379 x 1.17 = MYR 336m. Net profit of 12% will be = 12% x MYR 336 = MYR 40m. EPS will be around 8.24 sen and  2.75 Singapore cents. 

That translate into a listing PER of 9.45x based on 2017 projections. (I am guessing and not privy to the projections)

Use of proceeds

Dividend Policy

This is probably quite rare . . .  (first time i see it...) the Company intends to distribute a special dividend of 3% of the placement price as special dividend to be approved withing 3 months of listing. This means that investors don't have to wait for a full year to "enjoy" this special dividend. This translate into 0.78 cents or a "yield" of 3%. Basically the Company is trying to tell you "I don't really need your money". πŸ˜‚

In addition, the Company will pay out 40% of its net profits after tax as dividends for 3 years from FY2018 to FY2020. Assuming an unchanged EPS of 2.75 Singapore cents, the dividend payout will be 1.1 Singapore cents. That translate to a yield of 4.23 Singapore cents, which is very decent in today's environment. Do note that the Company expects admin expenses to rise in FY2018 due to the listing (page 136).


The founding family will continue to control the Company with a 72% stake. Shares will be tightly controlled.

What I like about the Company
  • Simple to understand and "boring but stable" business - The business is simple and straightforward to understand. Maker of bedroom furniture. While it concerns the bedroom, it is definitely not a "sexy" business πŸ˜‚, hence don't expect it to trade at high valuations. However, having said that, will internet change this industry? Internet will probably change how you buy the bed but you will still need a comfortable bed for a good night sleep. Unless everyone starts using the tatami, people will continue to need wooden beds for their homes
  • The Independent directors subscribed for the shares - at least the independent directors bought shares at the IPO. While the amount applied for is not material, it helps  provides alignment of interest with the public investors (page 26 of prospectus)
  • Audited by Ernst & Young one of the more established accounting firms
  • Cash rich with little debt- The Company is pretty well run with stable revenue and profits. It doesn't have much debt at all, with a low debt to equity ratio of 0.05. I love cash rich company with no debt right. I also like the fact that the family did not dividend out the cash prior to listing but share it with new investors coming in.
  • Dividend paying stock - The Company has "declared" that it will be a dividend stock from the onset, right within 6 months of its listing, it will declare a 3% dividend, followed by a decent dividend for the next 3 years. I believe the Company is signaling to investors that it will be a dividend paying stock 
  • Long moratorium - This is probably one of the longest moratorium i have seen. The founding family (page 63) agreed to be locked up for a period of 4 years, probably sending a signal to let investors know they are in this for the long haul
Some of my concerns
  • Competition and single product class - This is a competitive industry with low barriers of entry. The Company's sole focus is on bedroom furniture. Investors will have to assess for themselves whether they are comfortable with this single exposure. 
  • Lack of brand awareness and ownership - The Company is an ODM and OEM and doesn't have its own brand. While this helps ensure no conflicts of interest with the end customers, it also means that it has to be a "low" cost producer, otherwise, the brand owning customers will look for cheaper sources of production.
  • Sustainability of business model - Bedroom furniture uses woods as its primary raw material. With an increasing investors' focus on sustainability, the Company may have to review its process continuously to ensure they are also sourcing from sustainable sources. This may have an impact on their business in future.  
  • Revenue is in USD while manufacturing cost is in MYR - The major market for the Company is the United States and a depreciating MYR is good for its business as its products will be cheaper. The listing in Singapore will probably results in a new foreign currency being introduced. US$:S$ for revenue and S$:MYR for its operating expenses. This probably adds a layer of complexity on forex exposure and the Company may have to re-look at its forex and hedging strategies.
  • Future growth - I am not sure where the future growth of this Company will be. The Company mentioned that it intends to start expanding to China, this is still preliminary and execution of this strategy will be critical if the Company wants to have a "new growth angle" (page 136). 
  • Family owned business - at its heart, it is still a family run business where the father has now passed the baton to its son. The CEO is currently 31 and will implement fresh ideas while the dad will be his guiding voice. Other relatives includes Tan Ai Luang and Tan Kwee Lim. Picture of the relationship below (sorry forgot to bring my "pen" home). Public investors will hold 15% while the family will own about 72% of the Company. I have nothing against family owned business as long as they are professionally run even though it will be difficult to implement any personnel changes to the company. The flip side is that if there is a "quarrel", then it will bring disruptions to the operations. 

Peer valuation

There aren't many similar companies listed. Those that i can recall include Man Wah holdings delisted in 2009 and relisted in Hong Kong and HTL International (Hwa Tat Lee International) that was privatised in 2016. The only remaining closest peer is probably Koda.


Assuming LY Corporation trades at 10-12x PE, the fair value will be around 27.5 cents to 33 cents. I am giving it a higher valuation due to its dividend paying policy.


This is a stable, boring and cash rich business where it pays a dividend of between 3-5% each year. The founders have done whatever they could to sweeten the deal for the IPO, including paying out a 3 cents "dividend" within 6 months (my projection) of IPO. It has also established a dividend policy of paying out at least 40% of its net profits for the next 3 years. You can see from through the actions of the family that they are not "greedy" and did not dividend out the cash prior to its listing but shared that with incoming investors. The Company managed to generate a decent profit over the last few years and has little debt on its balance sheet. 

My only "grief" is that they did not have any public tranche. Other than that, it is a 2 chilli for me except that i am not a "fan" of this industry... 


The website is down. Will put up the poll later tonight... 

Monday, 1 January 2018

Memories Group Limited

For Information only

Memories Group Limited ("Memories Group" or the "Company") is doing a compliance placement of up to 50m new shares at $0.25 per share. The offer is expected to close on 3 Jan 2018 and starts trading on 5 Jan 2018. This is a reverse take-over ("RTO") of SHC Capital Asia Limited, hence there is no public offering. Even though the business of Memories Group is easy and simple to understand. I have to say that evaluating a RTO is more challenging than a usual IPO as RTO process is more complex. It involves consolidating the old shares, issuing new shares for the businesses to be acquired and then placing out the compliance shares. You can find a copy of the offering information statement ("OIS") here

The compliance placement is to ensure compliance with listing rules to ensure at least 15% of the shares are held in the hands of at least 200 shareholders.  Based on the enlarged number of shares of 401,708,863 shares and the placement price of $0.25, the implied market cap of the Company post RTO will be $100.427m. 

Principal Business

The Company is the fist Myanmar-based tourism company with a unique Integrated Tourism Platform to be listed on Singapore Exchange and Memories Group intend to develop tourism destinations and acquire new tourism-related businesses upon listing.

There are 3 business segments:
  1. Experiences segment - consists of Balloons over Bagan that operates hot air balloon flights in Bagan and Inle Lake regions and the Bagan Land. (see picture above). This is one of Myanmar's most iconic tourist attractions
  2. Services segment - destination management business branded under Asia Holidays Travel & Tours offering customised tours, unique excursions, activities and cultural experiences
  3. Hotels segment - consists of Hpa-an Lodge, a luxury 19-room boutique hotel located in the foothill of Mount Zwekabin and Pun Hlaing Lodge, a 46 room urban resort located within Pun Hlaing Estate and still under development. The Pun Hlaing Lodge is expected to be completed by FY2019
The 3 segments operate under one brand to allow operational synergies, economies of scale and cross-selling opportunities and to give tourists a seamless and holistic experiences in Myanmar.

Financial Highlights

The above charts show the profitability of the 3 key business segments.I believe revenue and profitability will pick up in the coming years if Myanmar is able to attract more visitors and when the Pun Hlaing Lodge is completed in FY2019.

According to page 117 of the prospectus, the NTA of the Company is around $55m and the NTA per share is 13.69 cents versus its placement price of 25 cents. The pro forma statements is presented below.

Due to seasonality, the Company performs best from October to March and from April to Sep, the Balloons business in Bagan is not operational. In this regard, the 3rd and 4th quarters in each FY will generally be better than the 1st and 2nd quarter. As such, the loss for 3M2018 in the pro-forma statement is expected.

Assuming the Company can generate a net profit of US$1.2m and based on the enlarged shares, the EPS will be ($1.2m x 1.34 divide by 401m shares) = Singapore 0.4 cents. Based on the IPO price of 25 cents, the PE is around 62x.... hmmm...not "value for money" at all....

Future Business Plans (copy from OIS)

The Company intends to use the platform to acquire related assets in Myanmar

Use of Proceeds

You can see that the use of proceeds is to construct the Pun Hlaing Lodge and develop the BL Land

Substantial Shareholders

The substantial shareholders of Memories Group are: 
  • Yoma Strategic Holdings ("YSH), a company listed on Singapore Exchange, who will hold 41.6% of the Company
  • See Hoy Chan from Malaysia 8.9%
  • First Myanmar Investment Company ("FMI"), the first company to be listed on Yangoon and owned by Serge Pun will own 10.4%
From the above, you can expect the shares to be tightly controlled by few key shareholders with the majority owned by Serge Pun. If the placement of shares is done well, the share price could perform well.

Board of Directors

The Board comprises Serge Pun as the Executive Chairman. Mr. Serge Pun is a self-made businessman. According to Forbes, he is ranked 35th out of Singapore's 50th richest with a net worth of $800m in 2017. You can find more interesting article about him here. What is interesting about the Financial Times article is that Serge Pun is known to be clean.

Numerous interviews with those who have done business with Mr Pun have yielded no suggestion of dubious practices. "Serge is tough – you offer him a slice of bread and he'll take the loaf. But he's clean," says one Yangon-based businessman. From the above, you will know that he will not be injecting the Memories Assets at cheap valuation. Injecting the assets and then placing out compliance shares at a prospective 62x PE certainly demonstrates how savvy a businessman he is! 

You can find his also CV on page 148 of the OIS.

Mr Serge Pun is a Myanmar national who founded Serge Pun & Associates Limited in Hong Kong in 1983. Over the years, he expanded the business to China, Thailand, and Singapore before returning to Myanmar in 1991 to set up SPA Myanmar. Today, SPA Myanmar has grown to become one of Myanmar's leading business groups. Mr Serge Pun is the executive chairman of YSH, a company listed on the Mainboard of SGX-ST, with a market cap of approximately S$1.0 billion. YSH is primarily involved in the real estate, consumer, automotive and heavy equipment sectors, with key investments in other strategic assets. He is also the executive chairman of FMI, which is the first company to be listed on the Yangon Stock Exchange. FMI's core businesses are financial services, real estate and healthcare, and it is the majority shareholder in Yoma Bank.

Mr Serge Pun is a member of the World Economic Forum's ASEAN Regional Strategy Group and ASEAN Regional Business Council. He is a standing member of the Chinese People's Political Consultative Conference of Dalian and a member of the Asia Business Council. He is the chairperson of the International Advisory Board of Singapore Management University for Myanmar and served as an Honorary Business Representative of the International Enterprise Singapore for Myanmar from 2004 to 2006. He is a frequent speaker in international forums
on Myanmar and ASEAN. As the proposed Executive Chairman, Mr Serge Pun will oversee the overall development and performance of the Enlarged Group, setting and executing the strategic directions and expansion plans for the growth and development of the Enlarged Group.

What I like about the Company
  • Experienced Management Team - The CEO, Mr. Michel Novatin and its COO, Mr. Jean Michel Romon, had collectively more than 40 years of experience in the hotel and tourism businesses. 
  • The last frontier with good growth potential - Myanmar is under-developed as a tourism destination given its military past and given the low base, there is good potential to develop on that front. If the country continues to open up, the govt will want to further develop the tourism industry to bring in the foreign dollar and Memories Group will be one of the beneficiaries. According to World Travel and Tourism Council's forecast, Myanmar will rank 2nd out of 184 countries for long term growth by 2026. International arrivals have also seen a 3-fold increase from 0.4m to 1.3m from 2011 to 2015
  • Interesting and influential shareholders - The key shareholders of Memories Group are linked to Serge Pun and he is a self-made millionaire in Myanmar. One of the interest points picked up about him is that he is a tough businessman but he is clean. The shares in the company will be tightly controlled by a few key shareholders with the public holding around 27% 
  • Healthy balance sheet with no bank debt - Post the compliance issuance, it seemed that the Company has no bank debt on its balance sheet. This will allows the Company to have greater flexibility in pursuing M&A opportunities in Myanmar
Some of my concerns
  • Single country exposure / Political risk is high - The Rohingya crisis highlighted that the military is still very much in control in Myanmar even though the military leaders are trying very hard to change that perception. Political risk is high in this country and things many change overnight and Memories Group has a single country exposure risk. If the Company loses its license to operate the balloon business or if regulations allow more companies to operate, this may potentially disrupt the businesses of Memories Group.
  • Rohingya crisis could be a potential landmine - if not handled properly, the crisis may lead to a backlash by many countries and boycott of Myanmar as a tourism destination. Investors buying into the company would have to take this into account and ride out the storm
  • CEO's age may be a concern - The CEO is around 74, his age is a concern unless the COO is groomed to takeover from him. The COO, Mr. Jean-Michel Alain Romon is 44 this year and has many years ahead of him
  • Pro forma financials are showing losses - The latest pro forma for 2017 as well as 3MFY2017 seemed to point to a slow start and a loss. This is probably due to the seasonality where it is not the peak season.
  • Balloon Business is weather dependent - The Company operates 12 balloons in Bagan and 2 in Inle Lake. The balloons have a maximum capacity of 8 to 16 seats and does not operate during the rainy season or during bad weather. The rainy season runs from Jun to Sep while April to May are hot and considered as non-peak seasons.
  • Replacing KPMG with Nexia  - While Nexia is the existing auditor of Memories Group, my preference will be a for big 4 to audit the company
Peer Valuation

This is one of the few rare companies that is focused purely on tourism.

Straco that is listed here has actually done very well for its investors. It is a multi-bagger for IPO investors and is currently trading at 15.8x PE and a price to book of 2.8x.

While not directly comparable, Memories Group definitely looks expensive from a PE perspective. However, its implied price to book of around 1.8x is lower than that of Straco.

How Memories Group will perform forward will depend greatly on the assets that it can acquire and how the tourism market develops locally.

My Chilli Ratings

It is not applicable as there is no public offering. While i like the business sector and the potential that comes with it, the IPO comes with emerging market as well as political risk. The mitigating factor is you have an experienced shareholder who knows how to navigate the Myanmar eco system. How Myanmar develops politically and economically over the next 5 to 10 years will have an important bearing on this company. The business is definitely not acquired cheaply, hence investors will have to take a longer term view.

If there is a public offering, i would probably have given it a 1 Chilli Rating. 

Polling Time

You can take the poll here

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