Wednesday, 1 October 2014

EMAS Offshore Limited

EMAS Offshore Limited ("EMAS" or the "Company) is formerly know as EOC Limited. It has a primary listing in Oslo and the information is here. The secondary listing is in Singapore. The original term sheet is here and you can see that it is listed at the highest end of the valuation range.

Principal activities

EMAS is an established offshore oil and gas services provider which offers offshore support, accommodation and offshore production services to customers in the oil and gas industry.

The Company believes the core competitive strengths are:
  • Leading offshore services provider with one of the youngest and largest OSV fleet in Asia Pacific
  • Global reach with blue chip clientele
  • Integrated offshore solutions group with first mover advantage in high-growth markets
  • Experienced management team
Share offering

EMAS is offering 48.585m shares and the offering comprises of 11.1% of is outstanding share capital. 39.5m shares will be via placement and 9.085m shares via the public tranche at $1.21 per share.

The Company is also selling up to US$20m secondary shares to its existing shareholders for "anti-dilution" purposes.

There will also be an "over-allotment" option but frankly i will be very surprised if this is activated as the placement suffered from low demand during the book-building period. I am not sure what has transpired since then.

The offer will end at 12pm on 2 Oct and commence trading on 8 Oct 2014 at 9am.

Financial Statements

Revenue has been declining drastically from 2011 to 2013 from US$178m to US$43m. They have managed to jack up current year to date earnings to US$51m through "other operating income" in the likes of a sales and leaseback.  I don't like the look or smell of it.

From the cash flow statement, you can see that EMAS generated its cash from investing activities for 9M 2014 rather than from its operating activities, which is experiencing negative cashflows.

Pro Forma statement

The Company produced a pro-forma statement as if the business combination occurred.

I am not sure how much of the profit is recurring and how much expenses are one-off. It is really not too clear to me. Assuming the EPS will be around US 15 cents x 1.25 = Singapore 18.75 cents. Based on the IPO price of $1.21, the PE is around 6.4x. If i looked at the gross profit alone, i will be alarmed. The primary business revenue has deteriorated badly over the years!

Financial Restructuring

Ezra has done this many times. For example they spin out Triyards, they list EOC on Oslo and then do a sales and leaseback and now a secondary listing in Singapore! I am not really a fan of such financial engineering stuff!

Other News

The family behind EMAS recently settled a divorce suit. The news is here.


If this is a secondary listing, it may be a good idea to know what existing investors at the primary market is valuing the company. It last traded on 30 Sep at NOK 5.10 and that translate into S$1.01 (versus the listing price of $1.21). Investors will probably be better off buying from the primary market in Oslo.

The peers however, seemed to be trading at higher valuations in SGX where even Ezra is trading at higher valuations.

My views

I don't really understand why the demand for the shares are so weak. It is probably investors (like myself) don't truly understand the Company. Given that the primary listing is trading at a 16.5% discount to the secondary listing price, investors are truly better off buying the existing shares than subscribing for the IPO (i am not sure if arbitraging is possible). 

If this is a primary listing in Singapore for the first time, i may given it a thumbs up given how i appraised Pacific Radiance back then but this bullish stance was somehow dampened by how PACC Offshore Services performing badly post IPO.

I will give it a zero chilli rating given the weak market sentiments, the financial engineering mindset and the fact that existing shareholders are valuing it lower in the primary listing venue in Oslo than in Singapore. I am sure Ezra has listed it there in the first place because Norwegian investors may appreciate such oil and gas assets better. 

Happy IPOing

Heidar's view

In case you don't know, the good thing about this secondary listing is that i have new friends from Norway. ^_^. This is the detailed analysis which he has emailed me on 3 Sep 2014. I copy and paste here for your kind reference on how Norwegian investors viewed EMAS. He have definitely done a more detailed analysis than me but do note the email and the analysis is not updated.

For us Norwegian investors EOC was a very complicated, but interesting, company to understand. This was because of them not communicating clearly enough and also because of their relationship with Ezra and the different "internal" transactions with Ezra and Perisai Petroleum. I won't delve very deeply into how the current state of affairs came to be, but will give an outline of the current status of EOC (not including the changes). In the attachements I have included an english summary of the history and changes to the company written a couple of months ago. Thus it does not include the sale and leaseback of the Lewek Champion.

EOC owns fully two accommodation work barges, the Lewek Chancellor and Lewek Conqueror, which are on bareboat charters until 2015 and 2019 with additional options. They own 50/50 with Perisai one accommodation barge with heavy lift and pipe lay capability, the Enterprise 3, which has just finished maintenance and is being tendered out. They also own two FPSO vessels, the Lewek EMAS which they own 42% of, and the Perisai Kamelia which they own 49% of (Perisai owns the rest). They are on charters until 2017 and 2016 with additional options. Additionally they lease with repurchase right a vessel they sold in february, the Lewek Champion. It is on a charter until 2019, but they have only a marginal net revenue from the vessel between the lease cost and charter revenue. 

Additionally EOC owns 144661000 shares in Perisai Petroleum, or 12,1%. The management of EOC and Ezra views this as a strategic investment (it's booked as a investment held for sale, but disregard that) because, in their own words, the Malaysia market is mainly operated by preferred "national" companies, and Perisai holds this status. Thus the rest of the EMAS companies gain a foothold in the oil service segment in Malaysia through their controlling share in Perisai. 

The key figures for EOC were an equity of 238mUSD and a market cap in Oslo of around 110mUSD (111 mill shares) before the proposed transaction. In many ways it's fair to say that EOC was underpriced, but this was mainly due to low sector pricing of supply on the Oslo Stock Exchange, scepticism of Ezra as main owner (they used to own 45%) and the fact that EOC did not want to pay out dividends and instead focusing on investments into more accommodation barges.

So that was the earlier situation for EOC. On July 10. they released the announcement that EOC was to buy the Offshore Support Services part of Ezra, which essentially is everything apart from their subsea business and Triyards. 

The total cost for EOC is 520mUSD, which will be payed partially in shares and cash. 150mUSD is to be payed in cash, and 370mUSD is to be payed through the allotment of 280 million new shares for Ezra, which give the alloted shares a value of 8,18 NOK or 1,65 S$ each. This is about 0,18 S$ above the current share price in Oslo. 

To raise the cash for the transaction and also for other capex needs (investment in three new additional ships for example) they are planning on an additional listing in Singapore where they will try to raise about 250 mUSD in cash. The central question for us in Norway is what share price they will manage to get in the IPO, and thus how many shares they are alloting. 

In return EOC acquires the OSS business in Ezra, which consists of 44 owned or leased (with purchase right) vessels, management structure and a consulting department. The 44 vessels are a mix of 24 AHTS, 7 AHT, 10 PSV, 2 Barges and 1 Accommodation and Construction vessel. The AHTS/AHTs are divided into 15 vessels smaller than 8000bhp and 16 larger than 8000bhp. The utilitization rate has been between 80-90% since 2011, and the average age is about 6 years. They also claim to have a very strong capability in deep water supply. The equity value of OSS is 396mUSD, but they have options to repurchase the leased ships that according to RS Platou (Norwegian ship broker) has additional value not recognized in the book value. The market value of the leased ships are 405mUSD, but their book value is recorded at 174mUSD, giving an option value of nominally 230mUSD. The reason for this according to the management of Ezra is that the repurchase price was determined as a % of purchase cost adjusted by future depreciation, and the ships were built in Asia. Since their purchase the price for these kinds of ships has increased a lot and the market for them has become mor globalized, meaning that it's easier now to sell an Asian ship to the European market. Thus the total P/B of the OSS in the purchase is 1,31 and the P/RNTA is 0,71 (this also includes market value for the owned ships). 

The combined EOC will have an equity of 736mUSD, and a total of around 600 mill shares depending on the issue price in the IPO. Thus the P/B 1 price is around 7,6 NOK or 1,535 S$. The company will have interest bearing debt of 562mUSD and a NIBD of 412mUSD. This gives dem a debt/equity ratio of 0,76 and a NIBD/equity ratio of 0,55. They are planning to grow further, so an increase of debt is to be expected. The pro forma profit for the combined company in 2013 was 80,7mUSD, but this is including 49mUSD in other operating income, mainly relating to sale and leaseback of vessels. Thus the ROE of the company for 2013 with 736mUSD in equity is 4,3% ex other operating income. On a run rate basis for 2014 they will make 90mUSD with other operating income of 50mUSD, giving them a run rate ROE ex other operating income of 5,5%. It is important to note that 100mUSD of the equity will be invested in three new vessels that have not made an impact on these revenue figures, and it is also important to note that the old EOC ships were not fully operational in 2013 and 2014 so far, Ezra have written that this is also the case for the OSS vessels in that period. In my meeting with them the management also held the belief that the combined company would enjoy synergy benefits that would improve the combined bottom line. For example the combined administrative expenses will go down compared to costs for the two separate entities. Another synergy benefit is that the OSS has a loan interest rate 1-2 percentage points below that of the old EOC, and the combined company would be able to refinance the companies entire debts on terms matching OSS old ones, thus reducing combined financial costs. Oh, and by the way, their accounting year begins in september, meaning that we are in 2015 now according to their accounts.

Concerning dividends it is important to note that EOC has not previously payed a regular dividend (for a very long time). The management of Ezra claimed verbally that as they moved the OSS out of their core business they lost a significant source for working capital, and were thus dependant on the new EOC paying a healthy dividend. They would not however specify what percentage of the result would be allocated as dividend. 

In this article,eoc-pre-markets-singapore-ipo.aspx the journalist claims that Ezra has advertised the combined company at a valuation of 1 bUSD, equaling around 10NOK or 2 S$ with 600 mill shares. This implies a PB ratio of 1,36. Do you think they can get such a price in the IPO, or do you deem that unlikely? If you have any information or opinions on the market sentiment for supply companies in general and Ezra in particular in Singapore/Asia right now I would greatly appreciate the input. Really any information you might have regarding the the IPO and the possible valuation of it would be greatly appreciated. 

Tuesday, 23 September 2014

Versalink - Balloting Results

Versalink reported its balloting results. The ratio is as follows. It is not easy to get though.

Having said that, the tranche is only 1.5x subscribed, so the debut may not be strong. It may be a good thing if you apply and didn't get it.

Let's see how it pans out tomorrow.

Happy IPOing

Saturday, 20 September 2014

Versalink Holdings Limited

Versalink Holdings Limited ("Versalink" or the "Company") is offering 37m shares at $0.30 each for a listing on Catalist of which 35.5m is via placement and 1.5m shares is for the public. 25m will be new shares and the balance vendor shares. The IPO will close on Sep 22 at 12pm. The market cap based on the IPO price is S$40.5m

The Company is an established Malaysia-based manufacturer of mid to high-end system furniture with over 90 overseas dealers in more than 40 countries globally.


The picture below shows you the types of furniture produced by the Company for its customers.

Financial Highlights

I quite like the financials of the Company, which is showing a very nice growth momentum. Revenue grew from MYR 49m to 79m from FY2012 to FY2014 and Net Profit after tax MYR 4.4m to MYR 14.5m during the same period.

Based on the post IPO enlarged share capital of 135m shares, the adjusted EPS will be MYR 10.77 sen or (Singapore 4.24 cents). This translate into a PER of around 7x.

The NAV per share is about 17.1 cents versus the IPO price of 30c.


The Company intends to pay not less than 30% of its net profit after tax attributable to shareholders for FY2015 and FY2016. Assuming the EPS remained the same, the Dividend Per Share = 30% x 4.24 = 1.272 Singapore cents. This translate into a yield of 4.24%, which is pretty decent.

Having said that, the sales is highly unpredictable and the Company said that it will record an interim loss for HY2015. This just shows you how difficult it can be to project sales and profitability on this Company. In this regard, my view is that the earnings may drop this year and the yield is probably lower than 4.24%. (Note that i have no visibility to the earnings forecast).

What I like about the Company
  • ranked by an independent research company as one of the most profitable companies among its comparables in Malaysia
  • Established track record and management team
  • Low cost base in Malaysia with a growing economy
  • Strong design and relationships with customers
  • Dividend paying company and lowly geared
Some of my concerns
  • Warehouse, Showroom and Hostel did not obtain the proper approval from the authorities prior to construction or for the usage (what is this.....?!!?)
  • The sales are denominated mainly in USD and MYR. A weakening of this two currencies will impact the reported financials in SGD
  • I don't really like the industry in which the Company is in. The barriers to entry is not very high and highly dependent on the economy. Whenever there is economy downturn, companies will not spend so much on "high-end" office furnitures.
  • Project basis revenue means that the revenue can be unpredictable and of non-recurring nature
  • Highly dependent on two key persons, Matthew Law and Arica Walters.
  • The vendors are selling out in spite of the low IPO valuation and this is a family owned business

I can't think of a similar company listed in Singapore in the same type of business. Some of the listed competitors in the region will include Rockworth Public Company in Thailand and Euro Holding Berhad in Malaysia and Lion Metal Works in Indonesia.

While the peers are trading at ridiculous valuation, that is probably because they are not really profitable and some are loss making. It just show you how tough this sector can be.

The Company is reasonably priced based on the historical PER but i am frankly not too sure on a forward basis, what the PER is. My guess is that it will be much higher at 7x.

Mr IPO ratings

I think some of you will be disappointed with my ratings. Despite the reasonable valuation and uptrending sales and profitability of Versalink, I am personally not too convinced on the industry dynamics for the longer term. The Company is also going to report a loss making 1H2015. 

In this regard, i will give it a one chilli rating. Buy only if you like it. If you are asking whether you can "punt" the stock, given the small float, it is probably possible if the share placement is done properly. However, i understand from grapevine that the Company is placing out the shares by themselves. 

I will not be applying but if you really must punt, be nimble as liquidity will dry up over time unless the Company managed to prove itself to the investors that its earnings are sustainable. 

(Photo Credit: Ms Sarah Seet)

Thursday, 14 August 2014

JAPFA - Balloting Results

JAPFA announced that its public offer of 16.8m shares was 9.7x subscribed. Given the larger float and quantum and the weak IPO sentiments, i have to say that this is a very strong subscription rate. The overall IPO was about 5x subscribed.

Balloting Results

The above table shows the balloting results. Those who applied for less shares will actually have a higher chance than those who applied for more shares... unbelievable.

It is interesting that they did not declare who the substantial placement holders are... from the grapevine, Asdew and Marubeni are substantial placement subscribers but somehow the Company did not reveal those names.

Instead, they chose to announce that Dymon Asia Multi Strategy Master Fund has subscribed for 500,000 shares. Dymon is run by a NTU alumni called Danny Yong and he is one of the global top 40 highest earning hedge fund manager. He definitely helps fly our Singapore flag in the hedge fund world. ^_^

Mr. IPO's result

In case you still don't know,  Mr. IPO is one who puts money where his mouth is and is a pretty straight forward person. Yes or No. Buy or Sell. 

Anyway, i am not successful in my IPO application, perhaps i should have applied for less shares instead.

Happy IPOing.

Tuesday, 12 August 2014

IREIT Global - Balloting Results

IREIT Global's public offering received a strong support and was 7.6x subscribed. It will debut on 13 Aug 2014 at 2pm.

I would say that this is a strong subscription given the weak sentiments. Investors who applied for 50 lots will have a 68% chance and receive 9 lots.

It is interesting to note that Alan Wang from Asdew Acquistions is in this as well. His stocks such as QT Vascular and Starburst have been performing really well. Let's see if we can see some "magic" on IREIT tomorrow.

Happy IREITing

Saturday, 9 August 2014

Happy Birthday Singapore

Singapore turned 49 today. Happy birthday Singapore. 

I will miss the floating deck when the celebration shifts to Padang then back to the National Stadium. It is always so inspiring when you celebrate the nation's birthday against the city backdrop. We have definitely come a long way. 

I make it a point to hang the flag outside my house during August. How else to show my appreciation to our forefathers for making Singapore what it is today. 

Happy birthday Singapore. May you continue to enjoy years of peace and prosperity. 


Majulah Singapore  


JAPFA Ltd (or the "Company") is offering 248m shares at $0.80 each for a listing on the Singapore Exchange. The IPO will close on 13 August 2014 at 12pm and starts trading on 15 August. The international offering will be 231.2m shares with the balance 16.8m shares for the public (at least this is a decent amount). There is an option to over-allot 37.2m shares for stabilization and the placement tranche was 5x covered despite the recent weak sentiments.

Principal Business

JAPFA is a leading agri-food company that produces multiple protein foods with operations in 5 high growth emerging Asian markets. The Company has a long history and developed core competencies in animal feed production, animal breeding, livestock fattening and consumer food.

Dairy business

This is quite an informational prospectus, so I decided to cut and paste the pictures above. It has a growing diary business in China and supply to leading producers there such as Yili and Mengniu. 

A quick look at trading comps for some of the dairy companies in China is presented below (source from Capital IQ).

You can see that the trading comps are trading at rich valuation in China for Dairy companies from between 20-40x PE. However, having said that, the overall revenue from China and from Dairy is still low, contributing only 3.5% of the Company's topline. If the Dairy business can continue to increase, the valuation of the Company will likely head north as it will become an interesting acquisition target for the Chinese companies.

Animal Protein Business

The Company is also a producer of high quality animal proteins and premium feed. This is the main business line for the company, contributing to the majority of the revenue. It is a low margin but stable business. I believe the Company is trying to position itself away from business into the higher value add diary and consumer food businesses.

Consumer Food

The Company manufactures frozen food in Indonesia and Vienam under the "So Good", "So Nice"and "So Fresh" brands.

Financial Highlights

Revenue has been increasing steadily over the last 3 years but unfortunately, the profits has fluctuated over the years with Q1 2014 coming in lower as well. Having said that, i am pleased to see an increasing EBITDA line over the last 3 years. 

What i like about the Company
  • One of the largest poultry producer in Indonesia
  • Leading premium milk producer in China
  • Emerging market is the right place to be with rising income and a large population
  • Vertically integrated business model allows the Company to extract profits across the value chain
  • Promising diary business in China and with a leading position in Indonesia 
  • Strong growth strategies in key markets to replicate farms and facilities in Inner Mongolia and China
  • Well diversified agri business
  • The independent directors subscribed for the reserved shares in a meaningful way of between 300,000 to 625,000 shares

My Concerns
  • Live stock business while profitable, is always difficult to handle due to factors such as internal controls. 
  • Biological assets are hard to value and "stock take" and any natural disease or man-caused scandals can wipe the entire live stock or affect the company drastically
  • Still primarily an Indonesia firm with >80% revenue derived from there, implying single country risk as well as exposure to Indonesia currency, which can be very volatile
  • Still primarily a "family-owned" by Santosa with a shareholding of > 64%
  • The Company is highly levered with debts bearing interest of between 6-13% and the net margins is too low for my liking. Having said that, if the Company is listed and can refinance its debt at lower interest rates, it will help improve the profitability going forward
  • With all due respect to RSM, the accounts are not audited by a Big 4


The pro-forma NAV is about S$0.66 and the listing price of $0.80 represents a price to book of around 1.2x, which in my view, is a reasonable price to buy for an established business.

Mr IPO's rating

I quite like this sector in which the Company is playing and that we can attract the Company to list here. My key concern will be the highly geared nature in which the Company is taking on debt to expand. To pay 12.75% interest rate on the notes is crazy given the low interest rate environment. I have done a quick and dirty forecast to derive the fair value (which i believe is totally off-mark so read at your own risk).

I have assumed a fair value of 15-18x PE and 6-7x EBITDA which i believe is fair for JAPFA. I am sure if the business is available at 6x EBITDA, many PE firms will be queuing up to acquire the firm. Based on the PE basis, the fair value range comes in at between 91-110c and based on the EBITDA range, the fair value comes out at between 85c to 100c. 

According to the Edge report, Marubeni is coming in as an anchor investor. The original book building range was between $0.75 to $0.87 and the Company priced it a $0.80 eventually given the current IPO sentiments.

Setting the high debts aside, i believe the Company is interesting enough for the medium term with growth initiatives coming on stream. I will give it a 2 Chilli ratings for the medium term but do watch the debt level closely and see if the Company is able to pay down its debt or refinance them at a lower cost.  

Happy Mooing. 

Wednesday, 6 August 2014

A Chinese "Love" Letter

Ok i received a "love" letter in Chinese from my reader but i thought it will be more beneficial to share this with the wider mandarin speaking readers :)


你好,我是IPO Newbies。我现在是sg的pr,家乡来自Johor,Malaysia。
读完了你之前所发表过,关于sg IPO的文章,我有一些疑问,需要你的意见。

1. 我可否用在dbs开的银行户口,输入我之前在UOB Kay Hian开CDP account的,透过dbs internet banking申请IPO?


2. sg的IPO,被分配到的比率,会否有划分singaporean,singapore pr,或是外国投资者呢?(因为我知道的是,马来西亚的public tranche,会有分别出bumi和non-bumi,bumi一般比较容易抽中)


3. 关于你之前"IPOing 101 - how to read a balloting table"帖里的balloting result,

我不是很明白Balloting Ratio的意思 :(
23 : 50,意思是不是说,在50个申请者里面,有23个申请者会被抽中,而一共有1,657个在20,000 to 49,000 share的申请者,被分配到5,000 share,对吗?


No. Successful Applicant代表的是多少个成功申请到的人数,那么我如何可以知道,是一共有多少人,一起在同个组(eg. 20,000 to 49,000)别申请呢?我是不是可以透过Balloting Ratio,自己计算有多少个人,也是跟我一起申请,对吗?

是的. 1,657 divide by 16.6% = 9,981. 大约有9,981申请者申请20,000至49,000股但只有1,657成功抽签到

4. 你之前的"How to increase your probability of get IPO shares from the public tranche"帖,里面提到"No.1 - Apply for at least 50,000 shares but the optimal will be 100,000 shares."。意思是如果该IPO的价钱是$0.25,我可以考虑花$12,500去申请50,000 shares,对吗?


5. sg的IPO,不会说你申请越多shares,中的机率越高,对吗?我知道,如果是马来西亚的IPO,如果申请1,000,000 shares,几乎都是100%被分配到的。


6. 什么网站可以看到最新即将上市IPO的完整prospect?


7. Samudra Energy Ltd,现在可以开始申请该IPO了?

还是不能,因为它尚未注册。 见下图

我没有买卖过sg的IPO,所以心里比较多疑问的 :(
谢谢和期待你的回复 :)

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