Monday, October 22, 2012

Initial Pop or Long Term View? - Gaylin IPO

Gaylin Holdings is the 4th IPO to list on the SGX in a space of 2 weeks following Courts, Geo Energy, and Religare. Not a bad week for cash-rich investors seeking the extra investment opportunities in a saturated property market, overpriced REITs soon-to-form-bubble and lack of global growth leading to stagnation in stock prices. Underwriters and company managements seem to be expecting the market to pick up in the final quarter of the year to spur up some more stock demand. The flood of liquidity from US and Europe (all the bond buying activities) and in anticipation of that from China has finally caught up with companies seeking that extra equity to drive growth in this intrepid environment.

Here's a quick summary of the offering. For more information, please refer to the prospectus lodged with SGX here.
  • Established since 1974
    • Expanded to Vietnam in 2001
  • One of the largest Singapore-based multi-disciplinary specialist providers of rigging and lifting solutions to the global offshore Oil & Gas industry
    • Manufacture lifting equipment
    • Ancilliary related services
    • Provision of ship supplies
    • 3 warehouses - 2 in Singapore, 1 in Vietnam
    • 1 fabrication facility in Singapore
    • Sales and distribution network spanning Asia, Oceania, Europe, the Middle East and Africa.
  • Business plans
    • Further expand into Asia
    • Expand Malaysian operations
      • Will be commencing construction on new facilities in Tanjung Langsat in Dec 2012
      • Setting up representative office in KL, Malaysia
  • Figures and numerics
    • $0.35 per share
    • 5,000,000 offer shares for public subscription
    • 110,000,000 new shares
    • S$38.5 million in gross proceeds to be raised
      • S$35.4 million after deducting listing expenses
      • 51.9% expansion of operations in Asia (ie. possible future acquisitions)
      • 5.2% expansion into Malaysia
      • 34.7% working capital
    • 'No formal' dividend policy
      • Intention is to distribute dividends of not less than 30% of net profits for FY2013 and FY2014
        • Net profit after tax is ~$12-13 million (for the last 2 FYs)
        • ~1c/share (based on 410 million shares after offering)
        • ~2.7% dividend yield over offer price of $0.35/share
  • Major shareholders
    • All shareholders stated below have pledged not to attempt to sell any of the post-offering share capital for up to 6 months from listing. This represents 73.1% of the company paid-up share capital.
    • Comfort shipping - 8.4 million shares (paid average 29.8c/share)
    • Amhoist - 8.4 million shares (paid average 29.8c/share)
    • Wee Seng - 6.49 million shares (paid average 30.8c/share)
    • Rhodus - 12.3 million shares (paid average 22.4c/share)
    • Keh Swee - 264.41 million shares 
  • Timeline for offering

Definitely considering this IPO as a hit-and-run IPO for the moment and not as a long term value investor. Reasons are as follows below
  • > 30 years of industry experience with Singapore-based operations represents some form of stability and continuity that the company can bring.
    • However, a quick check with Spring Singapore shows that the company faces strong competition to rise up as a global brand representing the Oil & Gas support services sector in Singapore. [Spring Singapore 2009 report]
    • The article also speaks volume of the intense competition in this saturated business environment although the Singapore brand name helps with overseas collaboration.
  • No 'formal' dividend policy gives me the vibe that the management may be uncertain of the future performance of the company and are unwilling to make any commitment.
  • Low liquidity stock except for the listing time fireworks. Only 26.9% of the shares are tradable in the next 6 months, representing 110 million shares or $38.5 million in value.
On the bright side,
  • I like the company's geographical and business focus. The management probably sees huge energy growth emanating from Asia and is keen to explore the developing demand.
    • LNG was sort of mentioned as a passing remark in the IPO prospectus but I suspect there would be more interest going forward to harness that demand that is developing sure fast in Asia and especially so, Singapore.
      • Coincidentally, Malaysia is a net exporter of LNG
    • Oil & Gas sector is ever-expanding together with energy demands. Let's remind ourselves that Japan is totally eliminating nuclear power and requires yet more oil & gas to sustain its energy needs. China is growing, albeit more slowly this time but Indonesia, Myanmar are up and coming.
  • PE ratio of 8.5x seems reasonable for a growing company
With Dynasty REIT also in the focus this week, I would still be tempted to put my money with Gaylin Holdings for the initial pop at the start of the listing. It is not an easy IPO to get too, given just 5 million shares on offer for a very active IPO market this period.

PS. for a statistical breakdown of all SG-listed IPOs in 2012, do visit "SG IPO Statistics" on this Healthytrading blog. It presents an easy snapshot of all the IPOs at a glance for your analysis and comparisons.

For those of you gunning for the Gaylin Holdings or Dynasty REIT IPOs, check out my blog page on "Guide to IPO Investing" to help you navigate around especially if you are a new investor or new to the IPO bidding system of SGX. Do not waste time; time is ticking away to those offer deadlines!

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