Asian Pay Television Trust

Asian Pay Television Trust ("APTT" or the "Company") finally launched its IPO at a price slightly higher than the mid-point range of $0.97. (The offering range was between $0.92 to $1.00). My preview post is here and the link to prospectus is here. The IPO will end on 27 May 12pm and will start trading on 29 May at 2pm.

The share offering is as follows:

-  Up to 866m units will be via placement 

-  70m units for a public offering. The market cap based on the IPO price is approximately $1.4 billion.

According to news report, the book was about 3x subscribed and given that this is a large float, you can say that it is pretty "impressive".  APTT is offering up to 936,164,086 units at $0.97 each and up to 1,008,004,086 units if over-allotment option is exercised. It is the first listed business trust in Asia focused on pay TV business. Frankly, you have to "credit" Singapore for coming up with the Business Trust regime or else this company won't be able to list here as most regulations require distributions to be made out of profits rather than cash flows. As such, asset heavy companies will find it attractive to monetize their assets via the business trust way (remember Hutchinson Port Holdings?)

APTT intends to distribute 100% of is Distributable Cash Flows and its mandate is to own, operate and maintain mature, cash generative Pay TV and Broadband Business in Taiwan, Hong Kong, Japan and Singapore. As such it is technically possible for APTT  to acquire Starhub Pay TV and Broadband services in Singapore (i am not saying it is going to happen).

Taiwan Broadband Communications Group ("TBC Group")

TBC is the seed asset which is going to be acquired by APTT. TBC group is the no.3 cable TV player in Taiwan with 15% of the market share as of Dec 2012. TBC offers 3 different types of services.

Franchise Area and Subscribers

As of 31 Dec 12, TBC has 751k basic cable TV users, 110,324 premium user and 175k broadband users. What is missing here is "triple play" where mobile, broadband and cable tv are bundled as a packaging (such as our Starhub "hubbing"). It is more of a "double play" of broadband and cable TV. As the infrastructure are "sunk costs", the company will make increasing marginal revenue as the subscriber base grow bigger. The good news is that the company has shown its ability to grow the base, but the not so good news is that the Average Revenue Per User ("ARPU") has been falling. Please refer to table below.

Structure

This is how the structure looks like. It is not quite simple structure and personally, i have a natural dislike for complex structure but it is probably for some taxation reasons.

Balance Sheet

You can see that the price which IPO investors are paying is for the "intangible asset" of $2.2b. According to the prospectus, the intangible asset is the Cable TV license to operate which is renewable every 9 years at "no significant cost" and if there is "no breach" of conditions under the license. There is no amortisation charge against this asset as it has "indefinite" useful life. IPO investors do take note of this intangible asset which you are buying into, which is the "promise" to pay you a stream of cash flows. 

Financial Performance

Not exactly a pretty sight. The Company has been making losses each year but somehow the Company has been able to pay out the dividends annually to the tune of $89m in 2012. It is probably a cashflow generating company if we strip out the depreciation and the interest expenses. Let's look at the pro-forma Profit and Loss statement below.

The pro-forma EPS is 1.86c and that translate into a whopping 50x PER if you want to use that metrics. The Company also made forecasts for FY2013 and FY2014, which is to show investors the "money".   

The forecast for FY2014 is higher because there will be no extraordinary costs to the tune of $72m (see the cash flow projection below).

The table below reconciled what is available for distributions to unit holders.

EV/EBITDA

Not sure if i have computed wrongly, i still cannot understand why i need to pay a mulitple of 13x to acquire this company using the pro-forma 2012 balance sheet and income statement. This is very expensive and considering that it is made up of intangible assets with a lot of bank debt. In the event that interest rate rises in future, the distributions will be adversely affected.

Cornerstone investors

Cornerstone investors are taking in about 32% of the company. They are a mixture of traditional (Prudential and Lion Global) and Hedge Funds (Neuberger Berman, OZ Master Fund (same as the one in STX OSV or Vard) and Quantum (Soros Family). I am not sure what they see in this company that i am "missing". Perhaps they see something that i don't. 

Distribution Yield

APTT has a forecast distribution yield of 7.5% for FY2013 and 8.5% for FY2014. Distributions will be made twice a year and the first distribution will be for the period from Listing Date to 30 June 2013. Distributions will be made within 100 days post the end of each period.

My thoughts about this transaction

This is a case whereby new IPO investors are buying off the stake of an older block of investors (shareholders of MIIF). MIIF is currently a listed entity on SGX and is winding down its operations after its board decide to divest all remaining assets and return the money to shareholders.

I have not been following MIIF so I am not so sure what is so "proud" to be associated with the sponsor, Macquarie, since it is because of them that shareholders of MIIF was in this situation. The stock has under-performed since its listing and i am not a fan of MIIF. Shareholders of MIIF are asking if they should request for cash or units in APPT and my question back is would you still want to continue investing with the sponsor or take this opportunity to get out? Probably i will elect cash if i am a shareholder of MIIF.

MIIF still have a large exposure to APTT post IPO and this transaction is to allow them to trigger out of the market post listing.

Large float

The list above is the recent IPO listing sorted by the public tranche available from shareinvestor (i think the data for Perennial is wrong). 

APTT is issuing such a large float (public and placement) that all investors who wants an exposure will probably get it. The large public share offering of 70m is also one of the highest in recent times. If you apply for the public tranche, there is a high chance of you getting it and in a "meaningful" way. I think it will probably be the IPO that ends the Singapore IPO window by sucking up all the liquidity.

What I like about the Company

• Recurring business of cable TV and Broadband is pretty stable and everyone needs a connection to TV and Internet nowadays.
• Increasing distribution yield projected from 7.5% in FY2013 to 8.5% in FY2014

My Concerns

• This is a competitive industry in Taiwan and price competition can get messy and this will affect the distributions. I am not sure of the legal dynamics governing this industry in Taiwan either.
• Highly leveraged company (67%) and an increase in interest rate will affect this company in future. Don't assume this low interest rate environment is going to last forever. 
• IPO investors are buying in a intangible asset (Cable TV license) and paying a high EBITDA multiple for this.
• The Sponsors only own 3% of APTT after the IPO and yet continue to receive management fees and performance fees. I am not sure if the interest is truly aligned.
• The float is way too big and there is enough demand to make everyone happy, which means upside potential is probably limited. 
• I think 7.5% in FY2013 is too low for an infrastructure asset. Private equity investors into infrastructure funds will demand a higher return than this.
• Post IPO, MIIF will continue to hold a significant chunk (to the tune of 525,866,849 units if all MIIF shareholders elect to receive cash) and this will cause a huge overhang on the share price as they need to divest those shares in order to be delisted from SGX (and i don't think they are subject to any lock up since investors who elect to receive units will not be subject to lock up).

Conclusion

I don't know how to appreciate this company and will leave it to investors (such as the cornerstone) who knows how to better appreciate it. I will give it a "chopped chilli rating" but unfortunately, i will probably be vested with some shares from my broker. ^_^

Soilbuild Construction Group Ltd

Soilbuild Construction Group Ltd ("Soilbuild" or the "Company") is offering 168m new shares for its initial public offering at $0.25 each. The prospectus is here.

• 2m shares will be for the public 
• 166m share via placement.

The IPO will close on 22 May 2013 at 12pm and starts trading on 27 May.

Soilbuild is a A1-graded construction group with design and build, turnkey and project management services. It has a 36 year old track record in consulting business spaces, HDB and condominiums. By definition, A1-graded means that it can tender for public sector projects in Singapore with unlimited contract value. The areas of focus for Soilbuild is residential and business spaces As of the date of the prospectus, the order book stands at over $500m.

Financial Highlights

I never like the construction sector because the revenue and profitability is rather lumpy even though this Company has been able to show increasing revenue and profitability. As of FY 2012, the revenue was $213m and the net profit was $22m. To be honest, i have no idea if this profit level is able to be sustained for FY2013 and FY2014. Perhaps more enlightened readers can shed some light.

Business projects are the "significant contributor" to the revenue line but the gross margins are in my views, too low and there is no room for errors.

The EPS for FY2012 adjusting for new shares is around Singapore 3.3 cents and that translate into a listing PER of around 7.6x.  The NAV post IPO is around 8.6 cents, hence investors who are coming in at IPO price, please be aware as the price to book is around 2.9x. I am not sure why the Company couldn't include the pro-forma bonus under the service agreement in the FY2012 results.

The market cap of the Company is $166m based on the IPO price and public shareholders will hold 25% post IPO and the Company intends to pay out at least 25% of it net profit from Listing Date till 31 Dec 2013 and at least 25% of its net profit after tax for FY2014. Assuming the EPS is maintained, it will imply a yield of approximately 3.3% based on the IPO price (3.3c x 25% divide by 25c).

What i like about the Company

• A1 graded company and the ability to provide comprehensive suite of construction services with proven track record
• Playing up IPO story with a "Myanmar angle" with 2 contracts there. Yoma was "chased up" recently due to its Myanmar connection.
• The promise to pay out 25% of its net profits as dividends for FY2013 and FY2014 but what i don't understand is why limited to only from listing date to 31 Dec 2013 for FY2013? Can't they just pay out based on the full year profits?
• Founder who contributes back to society. He was recently featured in the Sunday Times. You can read the article here.

My concerns

• I never like the construction sector. A lot of opportunities for dubious practices. Poh Lian construction, a wholly-owned subsidiary of United Fiber System Limited, was recently placed under judicial management due to mis-management of funds and poor contractual deals. The news is here. Considering that Singapore is having a construction boom for the last few years, this is quite sobering.
• The revenue and profits are always lumpy and difficult to predict and suffers from low margins.
• Myanmar is probably the "last frontier" but the concern is that this is a un-chartered territory and the company may not be able to do well there and this strategy may back-fire.
  
• The owners have already made one round of money 'delisting' the company a few years back. Now they are back with a revised structure but do investors know how to appreciate Soilbuild better now? There have been a list of companies doing a relisting here, Amtek, Courts, etc. The performance post IPO has been mixed.
• Arms length transactions between the parent company and Soildbuild.
• Tight labor market and increasing material costs will eat into the margins if the Company is unable to project its costs properly.

Valuation and fair value

As mentioned above, i have no idea if the profit level for FY2012 will be maintained. In this regard, i will just use the audited FY2012 profit level as a "gauge". The peers should include the likes of Chip Eng Seng, Koh Bros and Lian Beng.

According to shareinvestor, as of 18 May 2013,

- Chip Eng Seng is trading at a PER of 6.1x, dividend yield of 5.2%, Price to Book of 1.02x and has a market cap of $499m.

- Koh Bros is trading at a PER of 7.3x, no dividend and a price to book of 0.7x and has a market cap of $143m

- Lian Beng is trading at a PER of 5.3x, dividend yield of 1.9%, price to book of 1.1x and has a market cap of $278m.

As such, i see no compelling reasons to buy into Soilbuild. It is actually quite expensive if i use a Price to Book ratio. Investors might as well put their money into Chip Eng Seng which offers a better value proposition if they want such an industry exposure. However, having said that, the current IPO market and the sentiment is "hot" and the low price of $0.25 will probably mean that investors can "hit and run" but the low public float probably means it is very difficult to get meaningful shares anyway so i will probably give it a miss.

I will give it a 1.5 chillis for IPO punt and a 1 chilli for the longer term. 

Asian Pay Television Trust Preview ("APTT")

APTT lodged its preliminary prospectus and is currently doing book building for its IPO. 

My broker from DBS sent me the book building term sheet and here are the key terms.

Offering size - 1,393,696,000 units.

Cornerstone -    451,068,000 units. (about 31.4% of offering size)

Placement tranche - 917,628,000 units

Public offering - not less than 25m units.

Book building price range - $0.92 to $1.00 per unit

Distribution yield - FY2013 8.93% to 9.71%

                         - FY2014 8.25% to 8.97%

Cornerstone investors:

1. Asian Century Quest
2. Capital Research and Management
3. Eastspring Investments (part of Prudential)
4. Indus Capital
5. Lion Global Investors
6. Neuberger Berman
7. Och Ziff
8. Signature Global Advisors
9. Quantum Partners (Soros)

The book building will close on May 15 and after the price is set, the public offer will start on 17 May and ends on 27 May. The pricing will give you a hint as to whether the demand for the stock is "strong". I am not sure if there are other special incentives given to the cornerstone investors but we shall see. In any case, i am not 'impressed' with this list of cornerstone. It has the smell of too many "hedge funds" and they are certainly not value investors.

Mr IPO's biased view

I have to tell you upfront that i am biased against the pay TV business in Taiwan. There is only one word to describe it - messy and cut throat. There are many players who want to get in the market only to realize how competitive and cut throat the business is and by being the No.3 player in Taiwan, i frankly don't see what so great about this business. If MIIF has been able to sell it, they would have sold it long time ago rather than "repackaging it" and selling to yield hungry investors now.

Financials

                    

Let's look at the financials. Without reading the prospectus in detail, I am not sure how much the IPO proceeds will be used to "wipe out" the long term debt of the company which will then lower the interest and finance costs. I also don't understand why in taiwan, they have to pay such huge tax expenses which is even higher than the profit before tax. Again, i have not read the prospectus in details so i am just shooting off my cuff.

Proforma Statements

The pro-forma statements "looked somewhat different" as it has assumed the issuance of units to have taken place and in using the latest "In-thing" Chinese phrase “停电魔术” the financials suddenly looked profitable and attractive.

Whatever it is, the majority of the proceeds will be used to pay off the original shareholder and not much will be used to pay down the debt. In the addition, i think the large number of units in issue will probably "cap" the upside. 

Let's see if my biased views will change in the coming weeks. I will not give you my ratings and fair value for now. Please check back this blog again when the IPO is officially launched. ^_^  

Croesus Retail Trust - Balloting results

The balloting results is out and the results announcement is here.

This issue is very hot whereby the placement tranche of 207.6m units is 19.7x subscribed and the public tranche of 21.5m units is 48.8x subscribed. 

The balloting results as follows:

There is only one word to describe. The less you apply, the better the chance of getting some shares. hahaha. 

Mr IPO's balloting results.

I receive 4 lots from the placement tranche and zero shares from my public application!! :(

Congrats to those who managed to get it.

Croesus Retail Trust ("CRT")

CRT is offering 229.118m Units at $0.93 per unit for an IPO on the Singapore Exchange. The prospectus is here. 

It is the first retail business trust with properties in Japan to be listed in Singapore. The IPO will close on 8 May 2013 12pm and be listed on 10 May 2013 at 2pm. 207.613m will be for placement and 21.505m for the public.

Business Trusts Versus REITs

CRT is offered under the business trust structure. While previously i have been cautious on business trust structures, i think my perception has since "improve slightly" as there is no reason for Sponsors not to stick to what they have "promised" unless something detrimental happens. In other words, the Sponsors should continue to pay 90% or 100% of the cashflows back to unit holders even though it is not mandated by laws here. 

However, having said that, the underlying business is important and retail income is definitely one of the more stable business vis-a-vis, say a shipping or hospitality trust. Retailers don't move their shops every other month and are typically locked in for years.

Yield

CRT intends to distribute 100% of its distributable income from Listing Date till 30 Jun 2015 and thereafter at least 90%. As discussed, the actual level of distribution is still determined by the Trustee-Manager and not mandated by law and we have to trust the Manager to "stick to their promises".

The projected yield is pretty attractive at 8% given that a lot of yield compression have already taken place on SGX. Most of the retail REITs  such as CapitaRetail China or Capitamall or even Mapletree Greater China Trust are now trading at between yields of 4-5%.

Initial Properties

The pictures are below. Frankly i haven't been to these malls but in my view, that is secondary if we are comfortable that the sponsors are reputable ones and i have seen many "Aeon" malls in Japan while on my trips there.

The biggest contributor to the income is no.4 above. Mallage Shobu but you can see that the rental income are evenly distributed among the 4 properties. No key concentration risk.

The properties are freehold properties, currently 100% rented out and has a weighted lease expiry of 11.3 years. You can see that the tenants are locked in for the long term!

Cornerstones

According to reports, the demand for the placement tranche was overwhelming and many were cut back. The usual cornerstone investors are mostly reputable "long term" holders. You can find their profiles in the prospectus.

What I like about CRT

- Properties are focused on the retail sector and income will be stable.

- Japan is currently the "in place" to invest (surprisingly) under the new PM Abe.

- Strong sponsors in Daiwa and Marubeni and they have given voluntary ROFRs for sale of future real estate in Asia ex Japan. Both the sponsors are listed on the Tokyo Stock Exchange and have significant combined market caps of more than S$28b,

- Good pipeline of assets in Shenyang and Shanghai without the developmental risks and an additional 4 Japanese properties.

- Investing in JPY/SGD at a 10 year low as mentioned in my earlier preview post.

- Strong institutional demand for the units.

My Concerns

- Economic prospects have not been good in Japan for the last 10 years but that might be improving and the retail sector is still more resilient than the rest.

- High leverage of around 44%, which will affect the company's cashflows if interest rates goes up.

- Earthquakes or natural disasters but this should be covered by insurance.

Fair Value

Assuming a fair value yield of 6-7%, the price should have a fair value range of between $1.06 to $1.24. It is a 3 chillis for me and Hoot ah. :)

ps - sorry i did this in a hurry knowing many "fans" are asking for the report. Have to go now and i didnt have time to find out about the NAV which should be around par,

Happy IPOing

Croesus Retail Trust ("CRT") Preview

This is a funny name which i don't really know how to pronounce it. Should be read with a "silent e"?

Anyway, i am looking at this now because i have to indicate whether i am interested in it but i am not going to do a detailed analysis until it is launched. 

CRT is the first Asia-Pacific retail trust that has its "initial portfolio" located in Japan and it is the second attempt in which it is trying to list on the SGX. Saizen is the other REIT that came to my mind, but it is focused on the residential segment. My IPO write up in 2007 was here and i must say, the write up last time is so....yucky. hahaha Saizen has since went through a lot of issues (based on my rough recollection) with difficulties in renting out its apartments in 2009. The current yield on Saizen REIT is around 6.6%.

I am not sure whether the initial portfolio are good quality properties, as such, i will appraise this purely from a yield perspective assuming it can continue to rent out 100% of its units and rental remained the same. In addition, CRT has the right of first refusal on 2 retail projects in China and some properties in Japan which they will only acquire if it is accretive. The tentative launch date for the public offer is next week. 

In addition, the assets will be injected at a "discount" to its valuation price (around $15.8m at current rate of $12.5/1000 Yen. 

According to the draft prospectus, the forecast yield is around 8%. CRT has used an exchange rate of around $1.263/Yen. This is a tad higher than the current rate of $1.25. However, having said that, this is the best time to visit Japan, ever. The yen is at a historical low and i have been stocking up on Yen recently. I have visited Japan at least once every year since 2007...and from my memories, the current rate is one of the best rate ever. :oP

Above is the 10 year chart on SGD/Yen. You see the Sgd/Yen rate and you know that now is the best time to buy Yen (in case you play forex). hahaha. I believe the yen will revert to its mean so over the longer period. Assuming a more "normal" forex rate of $0.0145, the implied yield is actually higher if the future distributions are converted at a better rate.The yield will improve to 9.18% if i use an average rate of $0.0.145 but of course, this will be the "upside" scenario. In addition, when crisis comes, the Yen will appreciate as it is perceived to be a safe haven currency.

I like the retail space as well so i have no issues with this "segment" vis-a-vis Saizen. In recent months, Abenomics is working its magic to lure investors back to Japan. Another article for your bedtime reading on Abenomics is from our Today's papers.

Conclusion: It is a Hoot for me based on my preliminary review.... ^_^

Happy IPOing.

GDS Global Limited Balloting Results ("GDS")

Here you go, the balloting results for GDS. The issue (including the placement tranche) is about 13x oversubscribed. I have to support this since CIMB is so "brave" to let the public participate. More of a "moral support". :P

Those who applied for 100 lots will get a 20% chance and receive 4 lots. 

Mr IPO's result

5 lots for me. It will be a "hit and run" for me and hopefully, a profitable punt. :)

GDS Global Limited

GDS Global Limited ("GDS") is offering 17.5m shares at $0.25 each, comprising 12m New Shares and 5.5m Vendor Shares for IPO on the Catalist. 1m shares will be for public offer and the balance 16.5m share via placement. The offer will close on 17 April 12pm and starts trading on 19 April. At least CIMB is doing something more "courageous" than some other boutique outlets. It is letting public investors have a "chance" to play in the Catalist field and i must applaud them for that.

According to the prospectus, GDS is one of the leading commercial and industrial door manufacturer in Singapore.It is also one of the few players who are able to supply steel insulated fire shutters.  

Financial Highlights

As you can see from the financial highlights, this is a truly small cap company with low revenue and profit levels. In my personal view, investing in such small companies can be very risky.

Dividends

The Company intends to pay dividends of not less than 30% of its net profits attributable to shareholders in each of FY2013, 2014 and 2015. While this is a good intention, somehow, may not be appropriate for a firm who is supposedly growing at a fast pace and needs the cash for expansion.

Vendor Sale

For such a small cap catalist listing, i don't like the owners to be seen as cashing out. They should issue more shares instead of selling out.

Valuation

Assuming the service agreement has been in place and based on the enlarged share of 112m, the listing PER will be 10.92x. This is not exactly good value and even if i factor in a 20% growth (just a guess) in 2013, the PER is around 9x. The market cap based on the IPO price is around $28m.

Peer comparison

There is a listed peer in KLW. The website is here. KLW is trading at a PER of 48x and has a market cap of $20m but this doesnt mean that GDS is a good buy. In fact, i wouldn't have invested in KLW in the first place.

Conclusion

The Company is listing on the back of positive market sentiments and at a low absolute price of $0.25, there will be no lack of punters and speculators. My prediction is that given the small float, it will probably open with a bang and the subsequent movements will depend greatly on whether the stock is cornered or not. You may want to try your luck but note that this is not for long term investing and remember to be thankful if you can stag it as there will probably be heartache for people who chase this stocks post listing. I will avoid for long term investment but may consider it for a quick punt. 

Mapletree Greater China Commercial Trust Balloting Results

Mapletree Greater China Commercial Trust will start trading at 2pm tomorrow. The balloting result is as follows:

Placement Tranche

The placement tranche was 38.1x subscribed. The cornerstone investors were mentioned in my IPO write up here.

Public Tranche

The public tranche was 8.9x subscribed. Investors who applied between 50 to 199 lots will have the best chance of getting the shares. The balloting table is below:

My IPO results

It is apparently easier to get more shares from the ATM than from the placement tranche and I don't have to pay the 1% placement fees. I got 10 lots from placement but 40 lots from the ATM, so vested 50 lots.

I have previously shared with you what i think the fair value will be. So good luck to those who got it and hopefully, Mr. Dow will smile on us tonight.

Post Listing

Mapletree Greater China Commercial Trust (Final pricing)

Mapletree Greater China Commercial Trust ("MGCCT") finalized its IPO pricing at the top end of the indicative range of 93c. This is due to overwhelming demand for its units by the institutions. The IPO prospectus is here and the announcement by Mapletree is here.

There is a strong support from 11 Cornerstone Investors and the book was well covered. The Public Offer offering of 265,357,000 Units (less 50,304,000 reserved) will open on 9am 28 Feb 2013 and end on 5 March 2013 12pm.

Comparable

The yield is viewed to be quite attractive versus its key comparable, Link Reit (SEHK:823), which is trading at a yield of about 3.5% today. Hong Kong-listed Link Reit owns and operates a large number of retail assets formerly owned by the Hong Kong government and is viewed as a key comp.

Assuming MGCCT trades at that level, it will imply a good upside of $1.49!

However, I will not be so "greedy" but believe that given the quality of its assets, it deserves a good debut and Link REIT investors should "switch out" of Link and re-invest into MGCCT. A fair value yield of 4.5%-5% will imply a fair trading range of 104 to 116 cents. Having said that, it will be Singapore's largest IPO in 2 years thus I think the upside may be limited by the large float. A debut above $1 will be a good performance for me.

Mapletree Greater China Commercial Trust ("MGCCT")

MGCCT is established as a REIT with the investment objective of investing in income-producing real estatae in Greater China. The real estate will be used predominantly for retail and office purposes. The draft prospectus is here.

MGCCT is offering 776.636m units for the public offer, subject to over-allotment option. The indicative price range will be between 88c to 93c. The placement tranche is 511.279m units and the balance 265.357m units for the public. The float is huge and will suck up quite a bit of liquidity in the market. There should be enough to 'satisfy' demand, so don't expect too much fireworks on the IPO debut. Up to 79.851m may be "overalloted" if the demand is overwhelming and for price stablization purpose. The market cap at IPO price will be $4.41 billion.

The tentative dates are as follows:

28 Feb 9am - Launch of Public Offer

5 March 12pm - Public Offer closes.

6 March - Balloting

7 March 2pm - Commence trading.

The initial portfolio will consist of Festival Walk in Hong Kong and Gateway Plaza in Beijing.

Accordingly to the prospectus, Festival Walk is a premier retail mall in Hong Kong, is a retail and lifestyle destination of choice, has a attractive and large trade area and growing China tourist patronage. You may want to confirm that with your friends in Hong Kong. Readers who have been to this mall may want to drop a note to confirm if you agree with the prospectus.

Similarly, the prospectus mentioned that Gateway Plaza is strategically located premier Grade A office building and there is a scarcity of comparable properties. Gateway currently enjoys 98% occupancy and counts a number of MNCs as its tenants.

The portfolio has a diversified and high quality tenant base and the breakdown is below.

Cornerstone Investors

Nothing unusual about the cornerstone investors but probably they can help determine the final price at which the units are being offered. I hope it will lean towards 88c to leave some meat on the table and for "goodwill" since this is post Chinese New Year's first Snake IPO and we need to get off to a good start! ^_^  

Yield

At 93c per unit, the Manager projects a yield of between 5.6% for FY2013/14 and 6.1% for FY2014/15. At 88c per unit, the yield will improve to 6.0% and 6.5% respectively.

The first distribution will be for income received from listing date till 30 Sep 2013 and will be paid before 31 Dec 2013. The distribution will be paid semi-annually.

Unaudited Proforma Balance Sheet and financial forecast

Based on the pro-forma balance sheet and based on the final offer price of 93 c per unit, the price to book ratio is around be around 1.02x. The projected earnings and distribution is below for your reference.

Based on the projected figures above, the EPS is approximately 4c FY2013/14 and 4.2c for FY2014/15. The PE based on that will be around 23x based on the IPO price of 93c for FY2013/14. The implied yield will be 5.6% and 6.2% respectively. From a PE perspective, the IPO is expensive but from a price to book perspective, it is transacted at "fair value".  

What I like about the REIT

• Prime properties in Hong Kong and Beijing.
• Good track record of Mapletree. It's two other REITs, Mapletree Commerical and Mapletree Industrial have performed very well since their IPO debut. The links is to my IPO write ups last time.

Possible Concerns

• Depreciation of HKD against SGD since it is pegged to the USD.
• Buying over the assets at a high.

Fair Value

I think the closest competitor listed here should be Capital Retail China. (Perennial Retail China Trust is not so appropriate because it is more developmental in nature). At a listed price of $1.85, CapitaRetailChina is trading at a implied yield of 5.16%, PE of 9.44x and a price to book of around 1.42x. Using this metrics, lets try to project the possible trading range of Mapletree Greater China Commercial Trust.

PE ratio may not be a right metric as this is primarily a yield play. In this regard, i will probably use the implied yield of 5.16% as the primary benchmark and price to book of 1.42x as the secondary benchmark.

If it trades towards the implied yield of 5% to 6% --> the fair value of MGCCT will be between $0.88 to $1.05

If it trades towards a price to book of between 1.2x to 1.4x --> the fair value of MGCCT will be between $1.09 to $1.28.

Given the positive sentiments, the "decent" yield of 5.6%, i will give it a 2 Chillis Rating. This is a longer term yield play, not mean for short term punt as the float is big and i believe all interested investors will be allocated some shares. Perhaps some allocation to the SRS portfolio may be suitable. 

My wish list will be for the IPO to be priced at 88c instead of 93c.

Happy Chinese New Year

A Happy Chinese New Year to those who celebrate it. Best wishes for abundant good wealth and health. 

A Happy Holidays for those who don't celebrate :)

It is interesting to note that Snake has never been the most popular creature with mankind since ancient time, be it from the biblical times to the main characters from Slytherin in Harry Potter to many Hollywood movies such as Anaconda or Snakes in the Plane. Even Chinese Idioms are "very negative" when it comes to snakes, such as 蛇鼠一窝, 画蛇添足，蛇蝎为心. 

Will the year of the Snake be a good year for the stock market as well? We shall check back again next year. 

STI was 3,270.30 on Chinese New Year's eve, 8 Feb 2013. Let's see how it performs in the next 12 years. My guess is that it will slithers sideways with many highs and lows, creating many opportunities. Catch it well and you will slither your way to riches, catch it at the wrong end and be bitten by the snake. ^_^