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Hi guys, I was analysing the prospectus of this IPO, and this is what I feel ( it is just my opinion so please don’t be offended if it differs from yours.)
On page 61, it says
As adjusted for the Restructuring Exercise, the net proceeds from the issue of New Shares and the intended use of such proceeds ($’000)
Cash and Cash Equivalents 58,882
Indebtedness
Current
Term Loans (Secured and Guaranteed) 20,147
Non-current
Term Loans (Secured and Guaranteed) 443,035
Total Indebtedness 463,182
Total Shareholders’ Equity 299,119
Total Capitalisation and Indebtedness 762,301
Now, here is the crucial part. Assuming a 2.5% interest rate (page 190, first sentence states loan facilities between approximately 2%to 3%per annum) on the long term loan, in the next few years, the company will have to pay interest expense of 443m x 2.5% = 11m
On page 120, under audited 9m2011,
The pretax, pre-finance cost profit is (21.248 – 2.158)m = 19m
Adjusting it for 12 months, 19m / 3 x 4 = 25m
Accounting for the 11m interest expense per annum, pretax profit = 14m
Accounting for tax of 18%, net profit after tax = 11.5m
Therefore eps = $0.0115 (total 1,000,000,000 shares after IPO)
Considering a share price of $0.26, PER = 23 !!! WITH LARGE LEVERAGE
Even if shareholders are willing to forgo their dividends, it will take 443m/11.5 = 38 years to clear off its debt. What if interest rate rises to 5% in the next few years?
Can someone point out where I have gone wrong? Would really appreciate it.
Anyway, assuming I am correct, I would conclude that this IPO is a speculation NOT INVESTMENT. As a value investor, I think if we have friends or relatives interested in this IPO, we should make an effort to advise them.
On page 61, it says
As adjusted for the Restructuring Exercise, the net proceeds from the issue of New Shares and the intended use of such proceeds ($’000)
Cash and Cash Equivalents 58,882
Indebtedness
Current
Term Loans (Secured and Guaranteed) 20,147
Non-current
Term Loans (Secured and Guaranteed) 443,035
Total Indebtedness 463,182
Total Shareholders’ Equity 299,119
Total Capitalisation and Indebtedness 762,301
Now, here is the crucial part. Assuming a 2.5% interest rate (page 190, first sentence states loan facilities between approximately 2%to 3%per annum) on the long term loan, in the next few years, the company will have to pay interest expense of 443m x 2.5% = 11m
On page 120, under audited 9m2011,
The pretax, pre-finance cost profit is (21.248 – 2.158)m = 19m
Adjusting it for 12 months, 19m / 3 x 4 = 25m
Accounting for the 11m interest expense per annum, pretax profit = 14m
Accounting for tax of 18%, net profit after tax = 11.5m
Therefore eps = $0.0115 (total 1,000,000,000 shares after IPO)
Considering a share price of $0.26, PER = 23 !!! WITH LARGE LEVERAGE
Even if shareholders are willing to forgo their dividends, it will take 443m/11.5 = 38 years to clear off its debt. What if interest rate rises to 5% in the next few years?
Can someone point out where I have gone wrong? Would really appreciate it.
Anyway, assuming I am correct, I would conclude that this IPO is a speculation NOT INVESTMENT. As a value investor, I think if we have friends or relatives interested in this IPO, we should make an effort to advise them.