Stocks Commentary
Hock Lian Seng IPO.
A quick information on Hock Lien Seng for people who have bid for their IPO shares.
got my hands on the propsectus the next day and found that the financials diclosed to us by the broker were inaccurate (bottom line) always check what you are being told with the official documentation. Here is what I found out on going briefly through the prospectus:
a) gross cash as at end Dec 2008 was S$62.9mn and as at end of June 2009 was S$106.8mn.
b) prepayment was S$7.7mn. There was no debt with shareholders funds of S$33.18mn
c) Net profit margin since 2007 till H1-2009 is between 7-12%
d) company has an order book over 4 projects worth S$1.1bn to be completed between 2009 till 2015
e) IPO comprises 110mn new shares at S$0.25 bringing total issued share base to 509.97mn
f) issue manager is UOB with Kim Eng being the placement agent
The issue looked undervalued for the following reasons:
a) after the IPO - the gross cash of the company would be S$133mn compared to its post IPO market capitalisation of S$127mn - so its trading below cash levels
b) net profit for 2009 should come in between S$19-20mn based on its half year net profit of S$9.39mn. Net profit of 2008 was S$15.54mn
c) IPO PER based on expected net profit of S$19mn is 6.7 (fully diluted) but the business is actually free given that market capitalisation is below cash
d) the order book of S$1.1bn with more than S$1bn due between 2010 till 2015 means that if net profit margins of 7% are maintained will generate a future net income stream of about S$74.2mn - assuming they dont get any new contracts from now (which seems unlikely).
So if the company can trade up to where its peer construction group is trading at -10 times than based on FY2009 earnings - the conservative price target is S$0.37 a gain of 48%.
Some concerns - why does the company need a listing given that it has so much cash ? One possibility is that as its undertakes larger and larger cotracts, it needs more money for its performance bonds. Why is the placement agent Kim Eng and not UOB Kay Hian given that the issue manager is UOB - maybe the issue is too small. I dont have the answers but on the surface, it looks like an attractive IPO and if you are like my golf buddy being offered some placement script - I think its worth taking some shares....for at least 50% upside. But this is golf course analysis - our analyst will produce a more formal review later this week before the close of the IPO this Friday.
got my hands on the propsectus the next day and found that the financials diclosed to us by the broker were inaccurate (bottom line) always check what you are being told with the official documentation. Here is what I found out on going briefly through the prospectus:
a) gross cash as at end Dec 2008 was S$62.9mn and as at end of June 2009 was S$106.8mn.
b) prepayment was S$7.7mn. There was no debt with shareholders funds of S$33.18mn
c) Net profit margin since 2007 till H1-2009 is between 7-12%
d) company has an order book over 4 projects worth S$1.1bn to be completed between 2009 till 2015
e) IPO comprises 110mn new shares at S$0.25 bringing total issued share base to 509.97mn
f) issue manager is UOB with Kim Eng being the placement agent
The issue looked undervalued for the following reasons:
a) after the IPO - the gross cash of the company would be S$133mn compared to its post IPO market capitalisation of S$127mn - so its trading below cash levels
b) net profit for 2009 should come in between S$19-20mn based on its half year net profit of S$9.39mn. Net profit of 2008 was S$15.54mn
c) IPO PER based on expected net profit of S$19mn is 6.7 (fully diluted) but the business is actually free given that market capitalisation is below cash
d) the order book of S$1.1bn with more than S$1bn due between 2010 till 2015 means that if net profit margins of 7% are maintained will generate a future net income stream of about S$74.2mn - assuming they dont get any new contracts from now (which seems unlikely).
So if the company can trade up to where its peer construction group is trading at -10 times than based on FY2009 earnings - the conservative price target is S$0.37 a gain of 48%.
Some concerns - why does the company need a listing given that it has so much cash ? One possibility is that as its undertakes larger and larger cotracts, it needs more money for its performance bonds. Why is the placement agent Kim Eng and not UOB Kay Hian given that the issue manager is UOB - maybe the issue is too small. I dont have the answers but on the surface, it looks like an attractive IPO and if you are like my golf buddy being offered some placement script - I think its worth taking some shares....for at least 50% upside. But this is golf course analysis - our analyst will produce a more formal review later this week before the close of the IPO this Friday.
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