Tuesday, October 22, 2013

ValueMax Group Limited

Short Summary:
ValueMax Group Limited established their first pawnbroking outlet in 1988. They believe that they are one of the oldest and most established pawnbroking chains in Singapore, providing pawnbroking services and the retail and trading of pre-owned jewellery and gold. They believe their strong track record as well as in-depth and extensive industry knowledge have contributed to the company growth and steady expansion to 17 outlets in strategic and convenient locations across Singapore, comprising 16 pawnshops with pre-owned jewellery retail outlets as well as one (1) standalone pre-owned jewellery retail outlet. ValueMax's Singapore network also includes three (3) other pawnshops with pre-owned jewellery retail outlets operated by their associated and investee companies. In Malaysia, they operate five (5) outlets through their associated companies, which they believe makes them the only local pawnbroking chain with an overseas presence.

The Deal:
Offering Price: S$0.51
The Offering: 138,000,000 Shares (Include 5,000,000 Offering Shares to Singapore Public)
Cornerstone Investors:
None, management will own 74.1% of the enlarged shares.
Forecast Dividend Yield:
2012: 2.63%*
2013: No Forecast
2014: No Forecast
*Based on issue price of $0.51, 533,497,960 units after IPO, profit after tax of $14.300 million in 2012 and minimum 50% profit distribution policy.
Dividend Policy:
Although ValueMax currently do not have a formal dividend policy, the company intend to distribute 50.0% of their profit after tax attributable to their Shareholders for each of FY2013, FY2014 and FY2015 as dividends (which could include scrip dividends) (“Proposed Dividend”), as the company wish to reward their Shareholders for participating in the Group’s growth. Such dividends will depend on the company actual and projected operating results, financial condition such as the company cash position and retained earnings, other cash requirements including future capital expenditure, restrictions on payment of dividends imposed on the company by their financing arrangements (if any) and other factors deemed relevant by their Directors. A scrip dividend scheme will be adopted in accordance with the Listing Manual should a decision be made by the company Directors to issue scrip dividends. Investors should not treat the Proposed Dividend as an indication of the Group’s future dividend policy.

-Participation in the pawnbroking, pre-owned jewellery and gold industry value chain allows the company to harness revenue from complementary sources.
-Overseas presence in Malaysia through our associated companies.
-Skilled, experienced and qualified work force.
-Experienced and committed Board of Directors and management team.
-Proprietary operational software and data management system, allowing customers to renew their pawn tickets at any of the company outlets in Singapore since 2011.
-Established market position, with revenue of more than $450 million in FY2012.
-Established and award-winning company.

Business Strategies and Future Plans
-Expand our network of outlets through acquisition of businesses in Singapore, and through our associated companies in Malaysia.
-Set up new pawnshops and pre-owned jewellery retail outlets in Singapore and other countries as well as through our associated companies in Malaysia.
-Establish a flagship store comprising a pawnshop and a pre-owned jewellery retail outlet in a central location in Singapore to target different customer segments, including high net worth individuals who own articles with pledge values of above $50,000.
-Achieve a higher degree of integration of our businesses by offering incentives or discounts to our customers to use all the services we provide at our outlets and further leverage our businesses of pawnbroking as well as retail and trading of pre-owned jewellery and gold to provide a wider range of pre-owned jewellery items to our customers.

-Our business requires substantial capital and any disruption in funding sources or increases in interest rates on our funding would have a material adverse effect on our liquidity and financial condition.
-Gold price volatility may affect our profitability.
-We may be subject to misappropriation of cash or assets.
-Our business may be affected by non-renewal of leases or increase in rental of our shops.
-Competition in the industries we operate in is intense and any decline in our competitiveness could result in us losing market share and revenues.
-We do not have operational and management control over our associated companies.
-We are dependent on automated systems to operate our business.
-We may face uncertainties associated with the expansion of our business.
-We may require additional funding for our future growth.
-We are subject to risks relating to the economic, political, legal or social environment in Malaysia.
-We are affected by foreign exchange controls in Malaysia.
-High gearing of 39.26%

No doubt, ValueMax is in a leading market position as they have the highest revenue (>S$500 millions in FY2012) among the 3 pawnbroker companies once listed. In addition, they have exposures to Malaysia market, which will give it an edge over MoneyMax and Maxi-cash, which focus just solely on Singapore market. However, prior to IPO, I will like to point out that they actually have a gearing 54.07%, with most of the debt due to bank overdrafts as they expand their pawnbroking business. Utilization of bank overdrafts isn't a good idea for business due to the high interest rate they are charging, but with this IPO, they should be cutting down on the overdrafts and profit margins should increase. For their released 1Q2013 results, revenue is down sharply by 38.7% compared with 1Q2012 due to declining gold prices in 2013. 1Q2013 gross profits is down 14.1% compared with 1Q2012, help in large due to lower utilization of bank overdrafts. Based on FY2012 earnings, the issue price of $0.51 carries a PE of 12.59, which is considered a bit expensive for an IPO counter. Personally, I think there is no strong incentive in subscribing for this IPO, with lower profit in the coming quarter and high PE as a backdrop. However, if the management do use the money raised effectively for expansion, this might be a worthwhile investment as shareholders should see their investment bearing fruits 6-12 months later. As the management controls 74.1% of the company post IPO, this can potentially be an illiquid counter in the future.

Some useful information:
[21 Oct 2013], [5.00 p.m.] : Opening date and time for the Public Offer.
[28 Oct 2013], [12.00 noon] : Closing date and time for the Public Offer.
[29 Oct 2013]: Balloting of applications under the Public Offer, if necessary.
[30 Oct 2013], [9.00 a.m.]: Commence trading on a “ready” basis.
Rating for investment: 5.0/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.


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Such spectacular view of the Earth from outer space and good acting by Sandra Bullock as an astronaut in the weightless space, the movie is only fully justified if you catch it in 3D. Bullock has handled her role well in this short 90 minutes movie, grabbing the audiences hearts as we watched her struggle to handle the stress to survive when everything else has gone wrong. Definitely a movie not to be miss.
Rate: 8.5/10

Tuesday, October 15, 2013

VIVA Industrial Trust

Short Summary:
VIVA Industrial Trust is a stapled group comprising VI-REIT and VI-BT. VI-REIT is established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of income-producing real estate which is used predominantly for business park and other industrial purposes, whether wholly or partially, in Singapore and elsewhere in the Asia-Pacific region, as well as real estate-related assets in connection with the foregoing. VI-BT will be dormant as at the Listing Date. The initial portfolio of VIT comprises three properties located in Singapore (the “Initial Portfolio”), with an aggregate gross floor area (“GFA”) of 2,416,254 sq ft. The Initial Portfolio consists of (i) UE BizHub EAST, (ii) Technopark@Chai Chee and (iii) Mauser Singapore.

The Deal:
Offering Price: S$0.78
The Offering: 211,736,000 Shares (Include 21,174,000 Offering Shares to Singapore Public)
Cornerstone Investors:
256,410,000 Summit SPV, wholly-owned by Mr Tong Jinquan.
64,103,000 Ho Lee Group Trust
32,051,000 China Enterprises Limited
29,700,000 United Engineers Developments Pte. Ltd


Forecast Dividend Yield:
2013: 4.38% (Not annualized)
2014: 8.81%
2015: 9.01%
*Based on issue price of $0.78, 594,000,275 units after IPO.
Dividend Policy:
Distributions from VI-REIT to Stapled Security holders will be computed based on 100.0% of VI-REIT’s Taxable Specified Income and Specified Taxed Income for the period from the Listing Date to 31 December 2015. Thereafter, VI-REIT will distribute at least 90.0% of its Taxable Specified Income and Specified Taxed Income on a quarterly basis.  VI-BT will be dormant as at the Listing Date and no distributions will be made during the period that VI-BT remains dormant. It is assumed that VI-BT will have no revenue for the Forecast Period 2013, Projection Year 2014 and Projection Year 2015. In the event that VI-BT becomes active and profitable, VI-BT’s distribution policy will be to distribute as much of its income as practicable, and the declaration and payment of distributions by VI-BT will be at the sole discretion of the Trustee-Manager. There is no assurance that VI-BT would make any distributions to Stapled Security holders.
-Singapore focused portfolio comprising high quality and modern properties strategically located in key business parks and established industrial clusters
-Long weighted average underlying land lease (45 years).
-Highest proportion of business parks (77.6% of asset value) of any listed industrial S-REIT. The Managers believe that business parks are highly sophisticated industrial assets that cater to a wide range of tenants and command a rent premium relative to other industrial asset classes.
-Attractive and stable distributions driven by visible organic growth. Attractive distribution yield of 8.8% for Projection Year 2014 and 9.0% for Projection Year 2015.
-Well-positioned to capitalize on internal and external growth opportunities. There are opportunities for further growth through asset enhancement of the Properties and Visible acquisition pipeline through the ROFR Properties (Total 6 properties comprising of 2 in Singapore, 3 in South Korea and 1 in China) and other third party properties.
-Exposure to healthy and sustained demand in the Singapore industrial sector.
-Leverage on the Sponsors’, UED’s and Managers’ experience, networks and relationships in the Singapore and Asia-Pacific industrial sector.
-The appraisals of the Properties are based on various assumptions and the price at which VI-REIT is able to sell a Property in future may be different from the initial acquisition value of the Property.
-The Singapore Government has imposed control measures on industrial properties in the Singapore property market. There is no assurance that the Singapore Government will not introduce additional measures from time to time to regulate the property market.
-With effect from 1 January 2013, all REITs are to pay land premium upfront in respect of industrial building acquisitions on JTC Corporation (“JTC”) leased land sites.
-VI-REIT relies on UE BizHub EAST for a substantial portion of its Net Property Income.
-There is no assurance that VI-REIT will be able to renew the HDB lease for an additional term for Technopark@Chai Chee.
-There is no assurance that VI-REIT will be able to renew any JTC lease for an additional term.
-The type of new tenants at the Business Park Component of UE BizHub EAST is restricted. JTC has stipulated that 21,750.75 sq m of business park space at UE BizHub EAST can only be marketed and leased to IT companies that are supported by Infocomm Development Authority of Singapore, Singapore Economic Development Board or SPRING and each anchor subtenant is required to take up at least 1,500 sq m of business park space.
-The Properties may require significant capital expenditure periodically beyond the REIT Manager’s current estimate and VI-REIT may not be able to secure funding.
-Renovation or redevelopment works or physical damage to the Properties may disrupt the operations of the Properties and collection of rental income or otherwise result in an adverse impact on the financial condition of VIT.
-Construction of the Urban Plaza and Subway Link will not be completed prior to the Listing Date. VI-REIT may need to carry out and complete the Urban Plaza and Subway Link Works (expected after 2017) if UED does not do so. VI-REIT is required to pay up to S$4.2 million for the Urban Plaza and Subway Link Works (being a capped sum on the aggregate cost from the fees and levies payable to the LTA and other relevant authorities and the value of the construction contract to be awarded to UED to complete the Urban Plaza and Subway Link Works), with UED bearing all costs in excess of S$4.2 million.
-The overall plot ratio of UE BizHub EAST is in excess of the allowable plot ratio and differential land premium is payable.
-UE BizHub EAST and Technopark@Chai Chee may not achieve the same revenue once the rental arrangement expires.
-Acquisitions may not yield the returns expected, resulting in disruptions to VIT’s business and straining of management resources.
-The Managers’ strategy to initiate asset enhancement on some of the Properties from time to time may not materialize.
-High gearing of 39.96%
At first glance, an industrial trust providing a 8.8% yield in 2014 and 9.0% yield in 2015 seems like a steal! Furthermore, with 65% of the total shares (and 1 investor securing a whopping 43% alone) secured by cornerstone investors, it seems to tell us that we should look no further to invest our money in. After a second glance, I do find this offering particularly interesting. 2 out of 3 properties in the portfolio are new buildings and they have certain restriction in place. For example, 21,750.75 sq m of business park space at UE BizHub EAST can only be marketed and leased to IT companies that are supported by Infocomm Development Authority of Singapore, Singapore Economic Development Board or SPRING and each anchor subtenant is required to take up at least 1,500 sq m of business park space. This may affect the landlord ability to lease out the space effectively. In addition, a Urban Plaza and Subway Link Works is required to start around 2017 and VI-REIT is required to pay up to S$4.2 million, which translate to 0.9% of current yield and can eat into the income distribution then. The current yield is based on third party estimation and according to the released information in the prospectus, the occupancy rate is only at 66% of the estimated target. However, I believe the manager will be able to rise up to the expectation and deliver a reasonable return to its investor. Although this offering has a few good acquisition pipeline available for it to utilize, however, given its high gearing, any acquisition will most likely be in the form of new units issuance and this may have a potential to dilute existing investor holdings. Notwithstanding any major impact to distributable income in 2014 and 2015, the high percentage yield is simply hard to ignore. I will recommend to invest in this counter and will personally will be applying for this IPO.
Some useful information:
[28 Oct 2013], [12.00 noon] : Opening date and time for the Public Offer.
[31 Oct 2013], [12.00 noon] : Closing date and time for the Public Offer.
[01 Nov 2013]: Balloting of applications under the Public Offer, if necessary.
[04 Nov 2013], [2.00 p.m.]: Commence trading on a “ready” basis.
Rating for investment: 7.0/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.