Rex International Holding Limited (Rex) - Balloting Results

Frankly I'm surprised by the subscription rate for Rex (153X oversubscribed!!). It seems that the momentum for Singapore IPO continues to be very strong.

Below is the final balloting results for Rex:

Source: SGX Website

For a more detailed breakdown, please refer to the link below:

http://infopub.sgx.com/FileOpen/BallotingResults30072013.ashx?App=Announcement&FileID=249913

New IPO Coverage - Money Max Financial Services Ltd

From Company's Prospectus

1. Business Description

Engaged in providing pawnbroking services and retail and trading of pre-owned jewellery and watches. Incorporated in 2008, Money Max is engaged in providing pawnbroking services and retail and trading of pre-owned jewellery and watches. It has since established a total of 27 outlets across Singapore under 2 brands, (1) Money Max - 26 Outlets & (2) Cash Online - 1 Outlet, enabling the company to offer its customers convenient access to its service.   

From Company's Prospectus

Pawnbroking Services

Collateralize lending. Pawnbroking services generally relate to the provision of non-recourse, short term loans secured by pledged articles. Its customers are typically individuals who require short term funds and are able to pledge valuable articles, such as jewellery and branded watches as collateral.

Retail and trading pre-owned jewellery & watches

Trading business for jewellery & watches. Max Money retails and trades pre-owned jewellery and watches which they purchase from (i) walk-in customers; (ii) independent dealers and/or traders of 2nd hand goods; (iii) from their pawnshops' unredeemed pledges which are not bid for at the licensed public auctions; and (iv) pawnshops' unredeemed pledges which they successfully bid for at the licensed public auctions

From Company's Prospectus

Despite contributing 23.2% of FY12 revenue, pawnbroking accounts for 80.8% of Profit before tax. If you look closely into the numbers, you will notice that despite contributing 23.3% of FY12 revenue, pawnbroking actually accounts for 80.8% of Profit before tax!

This is not surprising. Pawnbroking is a form of collateralize lending. As long as the customer doesn't redeem the pledged items but continue to service its interest, it can be a good source of recurrent income. Even in the event that the customer stops paying, Money Max is well protected due to the collateral it takes.   

Do note that the amount of interest that Money Max can charge is regulated under the Pawnbrokers Act whereby they are allowed to charge interest at a rate of up to 1.5% per month on the amount of the loan.

You will also notice (from the table below) that the trading business for jewellery & watches is a low margin business. This is a common trait for any physical trading as the goods they trade are pretty commoditized and one can only compete from a pricing perspective.  

Note: For a more detailed explanation of how the 2 businesses work, one can refer to page 68-71 of the Prospectus. 

2. Use of Proceeds

From Company's Prospectus

3. Financial Highlights

In the world of finance, everything is relative.

I have provided below some comparison between Money Max and its closer competitor, Maxi Cash.

Round 1: Size (Winner: Maxi Cash)

Maxi Cash currently has 2 more branches than Money Max, providing them with more distribution network. Maxi Cash also has a bigger balance sheet compared to Money Max and thus has a size advantage compared to Money Max.

Round 2: Financial Numbers (Winner: Money Max)

Despite having a smaller balance sheet and generating a smaller revenue base, Money Max actually achieved a higher Net Profit Before & After Tax compared to Maxi Cash. As a result, Money Max were able to achieve a better margin and Return on Asset. Thus, it seems to me that Money Max has a higher operating efficiency compared to Maxi Cash. 

Round 3: Valuation (Winner – Money Max)

In terms of valuation, it seems that Money Max is priced more attractively compared to Maxi Cash both on a (1) Premium over NAV and (2) PE perspective. 

4. Investment Highlights

Well-established market player. With 27 outlets strategically located across Singapore, Money Max is a well-established market player.

Low interest rate environment. Depending on your interest rate view, this can act as a double-edged sword. If the interest rate environment continues to stay low, the pawnbroking business will be a sweet spot, as Money Max can borrow low & lend higher. This will result to a very decent margin for them.

Money Max looks cheap compared to Maxi Cash. As highlighted above, Money Max looks cheap compared to Maxi Cash and on a relative value perspective, it seems like a safer bet to buy Money Max compared to Maxi Cash.

5. Investment Risk

Raising interest rate environment. Note that the amount of interest Money Max can charged is been artificially capped by the Pawnbroker Act. In the event their borrowing cost becomes higher, their margin will be squeezed.

Declining margin on its trading business. Like I mentioned above, physical trading business is a tough market as the product they trade are pretty commoditized. If you noticed its NPBT margin for its trading business, it seems to be on a declining trend, signalling how tough the business actually is.

Volatile gold price. If you have been following gold price, you should know how volatile the market has become. Being a gold trader and taking gold as pledged asset, Money Max might be exposed to the volatile price action and might get caught on the wrong side anytime.

6. Technical Analysis

Technical bid should be strong for this given the subscription history of Maxi Cash and its initial price performance.

7. Conclusion

I have a feeling that this is another “All In” IPO given the cheap valuation and strong technical bid for it.

I will definitely put money to work here.

8. Timetable

From Company's Prospectus

New IPO Coverage - Rex International Holding Limited (Rex)

From Company's Prospectus

1. Business Operation

Independent oil and gas exploration and production (E&P) company with a set of proprietary exploration technologies (“Rex Technologies”). Scheduled to be listed on the Catalist, Rex is a small cap independent oil and gas E&P company with a set of proprietary exploration technologies - Rex Technologies. This is the 2nd E&P company listed on the SGX after the recent stellar performance of Mainboard's KrisEnergy.

Rex Technologies

From Company's Prospectus

Developed by the founders. Rex Technologies were developed by the founders of Rex Partners Ltd, Dr Karl Ligren and Mr Hans Lidgen, It comprises 3 key proprietary and innovative exploration technologies: Rex Gravity, Rex Seepage and Rex Virtual Drilling.

From Company's Prospectus

REX claims its high success ratio compared to the peers. According to the prospectus, Rex Technologies were 100% accurate in its predictions based on the 18 external tests conducted over the last 24 months. The worldwide success ratios in exploration drilling using Rex Technologies is estimated to be in excess of 50%, and Rex's Directors are of the opinion that this is much higher than the estimated average world wide and industry-wide success ratio of 10% to 15%. NOTE: Theoretically, this sound wonderful and exciting. However, I have my doubt see 5. Investment Risk.

New Start up firm with first production expected in 4Q13. Rex is a relatively young start up, incorporated only in 11 Jan 2013. Rex recently commenced a 80-well onshore drilling in the United States (7May13) and plans to drill two offshore wells in its Oman concession in late 2013 as well as the first well in each of its other two offshore concessions in the Middle East in 2014.

From Company's Prospectus

Geographically diversified concessions at more stable regulatory regimes than KrisEnergy. Rex has a diversified geographic concession  in Middle East, Norway and USA. Comparing this with KrisEnergy, these areas are considered more stable regulatory regimes. 

From Company's Prospectus

The table below provides a detailed breakdown on its concession:

From Company's Prospectus

2. Use of Proceeds

From Company's Prospectus

Note: Most of the proceed (S$36m) will be funded to its drilling expenses. It basically means that you are betting on the company's ability to achieve high success rate in its drilling. 

3. Financial Highlights

Offering price of S$0.50 represents 229.2% premium above the Net Tangible Asset (NTA). At an offering price of S$0.50, investor are paying 229.2% premium above its NTA. Thus the huge premium is equivalent to the growth potential you are paying for the company.

From Company's Prospectus

Offering price is 20% higher to pre-IPO investor. From table below, the offering price is 20% higher to the pre-IPO investors. I think this is fair given that they are taking more risk.  

From Company's Prospectus

Don't expect dividend anytime soon. Do note that Rex is a new start up and investor should not expect any dividend within the foreseeable future unless their production start stabilizing.

Financial Statements is similar to a new start-up company. Nothing unusual on its financial statement. Pretty common for a new start-up company.

From Company's Prospectus - Income Statement

From Company's Prospectus - Balance Sheet

From Company's Prospectus - Cash Flow

4. Investment Highlights

Pure growth play. Like I mention above, Rex is a pure growth play. Unlike KrisEnergy which already has existing producing fields, Rex only starts its first concession in May 2013. Thus basically you are betting on the company ability to deliver on all its promises. This is really a case of high risk, higher reward.

Geographic diversified concession with stable regulatory regime. This is definitely one of the highlight investing in this company. It has a geographic diversified portfolio and they are all in stable regulatory regime. Thus you can be sure that the company is not dealing with some dodgy 3rd world countries (the likes of some Africa and Latam countries) whereby you are exposed to high political risk.   

Ability to enter into partnership  deals. Rex prides that they are able to get into strong partnerships with strategic partners. Well, to a certain extent, this is definitely a strength, given that being a new company, more established guys are willing to believe in them to form a partnership deals. Nevertheless, I don't think it is anything to shout about as they are not the major oil & gas players (e.g. Exxon, Shell & etc).

From Company's Prospectus

5. Investment Risk

Rex Technologies might be over-hyped. So according to the Prospectus, it mentioned that Rex Technologies has a higher-than-average success ratio and it delivered 100% accurate predictions based on 18 external tests conducted over the last 24 months. Well unless you believe that 18 is a big sample size, this type of so-called tests is always subjected to statistical basis. So, unless they are able to give me a HUGE sample size, I would not buy the number easily.

Why do an IPO if their technology is so good and accurate? Again, this baffle me. If Rex is such a good growth story, why IPO the company to raise equity. Recall your Finance 101, equity is ALWAYS an expensive cost of capital. If the success ratio is so high, they could easily project its cash flow and go to the bank to borrow debt. Debt is cheaper and it will provide them with leverage too. By doing so and getting the production online and stabilize, I believe they can get an even higher IPO valuation!!

If I can think of that, why can't they. It makes me wonder if it is because the banks don't buy their story that's why they come out to issue equity.

Note: I need to disclaim a bit on this argument. It might sound a bit too extreme, but at guaranteedrisk.blogspot.sg, I will do this. I think it is my duty to point out all the risk factors. As per Murphy's law, anything that can go wrong will go wrong.

Management lacks the track record compared to KrisEnergy. With all due respect, I think the management are all great and capable guys. It's not easy to IPO a company, I'm not even sure if I can even do that. But unlike the KrisEnergy guys, the Rex's management lacks the track record. You should know I'm a firm believer of good management. Thus, I will need to monitor and access them myself as the time goes on to conclude on this. 

6. Technical Analysis

On the back of the stellar performance of KrisEnergy, I would say the bid for oil & gas E&P guys might be good.

Nevertheless, the stabilizing manager this time round is not CLSA but UOB Kay Hian. Thus I think the technical bid for this company will only at most be fair.

7. Conclusion

The recent IPO action has been doing pretty well and flippers should be in the money. (with the exception of OUE H-Trust which I was never a big fan for flipping it, see my article below)

Thus, investors will ask if they should do a flip on Rex?

Personally, I will be staying away from it this time round. My strategy is take a break and see how bullish & strong the IPO market really is.

Nevertheless on a fundamental perspective, Rex represents a high risk and higher return stock. If you believe the company can deliver on their production level, go in and GRAB it. If not, it is safer to stay away from such a risky investment.

Personally, at offer price of S$0.50, I will not be overly excited. However, if it eventually drop to around the pre-IPO investors' level of S$0.40, I might then go in to add some. I'm targeting the S$0.40 level, as I believe this is the "correct level" where the smart money (the pre-IPO guys) values the company. Thus, just follow the smart money =)

8. Timetable

From Company's Prospectus

OUE H-Trust - Balloting Results

According to the press release, OUE H-Trust drew strong support and it was 19.1X over-subscribed. OUE H-Trust will commence trading on SGX’s mainboard tomorrow at 2pm. (same timing as SPH Reit)

Source: SGX Website

Below is the SGX link for a more detailed announcement on the final balloting results:

http://infopub.sgx.com/FileOpen/Balloting_Announcement.ashx?App=Announcement&FileID=249090

SPH Reit - Balloting Results

Here you have it, the final balloting results for SPH Reit:

Source: SGX Website

For more detailed announcement, you can find it at the SGX website below:

http://infopub.sgx.com/FileOpen/SPHREIT_Balloting_Announcement_23July2013.ashx?App=Announcement&FileID=248867

New IPO Coverage - OUE Hospitality Trust (OUE H-Trust)

From Company's Prospectus

1. Business Description

Hospitality REIT with initial asset comprising of Mandarin Orchard Singapore and Mandarin Gallery. Like SPH Reit, OUE H-Trust is an iconic asset at the heart of Orchard Road. The sponsor for this OUE H-Trust is OUE, which is effectively owned by the Indonesia's Lippo Group.

From Company's Prospectus

Mandarin Orchard Singapore

World class hospitality in Singapore since 1971. Mandarin Orchard Singapore is an icon of world class hospitality in Singapore since 1971, Mandarin Orchard Singapore features 1,051 rooms, five food and beverage outlets, and approximately 25,511 sq ft of meeting and function space with a capacity of up to 1,840 people. The Hotel is one of the top accommodation choices in Singapore for leisure and business travellers globally.

From Company's Prospectus

Stable distributions with downside protection via 15 years Master Lease Agreement. Mandarin Orchard will be operated under a 15 years Master Lease Agreement (with a further 15 years renewal option) whereby a Fixed Rent will be guaranteed for OUE H-Trust, with a variable component allocated so that the unitholders are able to benefit from the out-performance of the hotel. Below diagram provides a summary to this Master Lease Agreement.

From Company's Prospectus

Mandarin Gallery

High end retail mall that complement the hotel to provide an integrated hospitality & retail experience for shoppers and hotel guest. Mandarin Gallery enjoys a high degree of prominence, boasting a wide frontage of 152 metres along Orchard Road. Featuring six duplexes and six street front shop units facing Orchard Road, the Mall is a choice location for flagship stores of international brands. The Mall comprises four levels of high end boutiques, shops and restaurants, and is complemented by Mandarin Orchard Singapore to collectively provide an integrated hospitality and retail experience for shoppers and hotel guests.

From Company's Prospectus

WALE of 2.4 years for Mandarin Gallery. Currently, Mandarin Gallery is having a 100% occupancy rate and has a WALE (weighted average lease term to expiry) of 2.4 years. As such, base on the Prospectus' projection, 69% of expected FY2014 revenue is stable and secured.

From Company's Prospectus

Strong acquisition pipeline. Again like SPH Reit, OUE H-Trust has the Right of First Refusal for the hospitality asset of their Sponsor, OUE. Below details the acquisition pipeline:

From Company's Prospectus

2. Use of Proceeds

From Company's Prospectus

3. Financial Highlights

Offering price of S$0.88, represent a 2.5% discount to NAV. OUE H-Trust's offering price of S$0.88 represents a 2.5% discount to its NAV.

Projected dividend of 7.36% & 7.46% in FY2013E & FY2014E respectively. Comparing against the recently concluded SPH REIT, OUE H-Trust boasts a higher projected dividend yield of 7.36% & 7.46% in FY2013E & FY2014E respectively. Nevertheless, this comparison is unfair as retail REIT provides a more resilient portfolio and is less cyclical when compared to a hospitality REIT which can be quite volatile. (think of how the tourism industry in Asia was impacted during SARS time)

From Company's Prospectus

Below are the financial statements from the prospectus for those who are interested:

From Company's Prospectus - Income Statement

From Company's Prospectus - Balance Sheet

From Company's Prospectus - Cash Flow

4. Investment Highlights

Yet another iconic Orchard Road asset. Do I need to say more on this? Like Paragon, Mandarin Gallery and Mandarin Orchard Singapore are iconic assets. It's the same story of being highly visible.

Strong Sponsor. Same story like SPH Reit. OUE H-Trust is backed by a well known Sponsor, the Indonesia's Lippo Group. Well, personally, I feel safer if its a Temasek-backed company as their Sponsor. Nevertheless, I won't complain. However, I need to highlight that Lippo Group is good but not great enough.  

Master lease arrangement (MLA) provides stability. MLA is a very common structure for hospitality REITs. Ascott Residence Trust has that too. So to a certain extent, it does provide some stability.

5. Investment Risk

Lack of upside catalyst. After hype of F1 racing and 2 integrated casinos in recent years, I struggle to find any upside catalyst for Singapore's tourism industry. Thus, the tourism scene will not witness any super-normal type of growth.

With a lack of extra-ordinary growth potential, there will be a no growth story to spin for OUE H-Trust. As a result, the share price will not have much upside growth traction.

6.Technical Analysis

This is very tricky.

Personally, with the closing deadline for OUE H-Trust being a day later than SPH Reit, it virtually tied up some liquidity in the market.

I can't really pin-point the technical demand for this and my best guess is that this will be weaker than SPH Reit. 

7. Conclusion

Like playing Texas Holdem, if I go "all in" for SPH Reit, I will only go mid way for OUE H-Trust.

I personally thinks that it will not perform as well for SPH Reit. But then again, I might be wrong.

8. Timetable

From Company's Prospectus

New IPO Coverage - SPH Reit

From Company's Prospectus

1. Business Description

Retail exposure, with 2 highly visible and iconic assets – Paragon Mall & Clementi Mall. Unless you live in outer space (joking, what I really meant is Singapore), you should know about these 2 assets – Paragon Mall & Clementi Mall. These 2 assets are owned by SPH, one of Southeast Asia’s leading media organisation and they have decided to list these 2 assets into a REIT structure.

Paragon Mall 

From Company's Prospectus

Strategically located at the heart of Singapore’s premier shopping and tourist precinct. Paragaon Mall is a premier upscale retail mall that is strategically located at the heart of Singapore’s premier shopping and tourist precinct, Orchard Road.

From Company's Prospectus

Table below set out a summary of key selected information of Paragon as at 28 February 2013:

From Company's Prospectus

Clementi Mall

From Company's Prospectus

Mid-market suburban mall integrated with a bustling transport hub. Officially opened in May 2011, Clementi Mall is strategically located in the centre of Clementi town in the west of Singapore. The retail mall is part of an integrated mixed use development that enjoys a high footfall as it is connected to the Clementi MRT station and is also easily accessible by car from the expressways located directly next to Clementi Mall.

From Company's Prospectus

Table below set out a summary of key selected information of Clementi Mall as at 28 February 2013:

From Company's Prospectus

Right of First Refusal (ROFR) for SPH’s property. Currently, SPH Reit holds a ROFR on SPH other property, The Seletar Mall. The Seletar Mall is a 6-storey mall under development located in Sengkang estate, a growing residential estate area in north-eastern Singapore. The mall is expected to be completed in Dec 2014.

From Company's Prospectus

2. Use of Proceeds

From Company's Prospectus

3. Financial Highlights

Distribution yield of 5.79% for Projection Year 2014. SPH Reit is targeting a 5.79% distribution yield for Projection FY2014.

From Company's Prospectus

Note: There is an Income Support Agreement (ISA) for Clementi Mall and this ISA states that its Vendor, CM Domain, will guarantee the Net Property Income for  Clementi Mall. In the event that the Net Property Income falls below S$31m per annum, the Vendor is obligated to top up the difference.

This ISA will last for a period from the (1) Listing Date to the day immediately preceding the 5th anniversary of the Listing Date or the (2) date when the income support reaches S$20m.

From Company's Prospectus

Straight forward financial statement. There is nothing unusual on its financial statement and Paragon continues to be the major revenue contributor for SPH Reit.

From Company's Prospectus

From Company's Prospectus - Balance Sheet

From Company's Prospectus - Income Statement

From Company's Prospectus - Cash Flow

Valuation is undemanding compares to peers. According to the prospectus, the NAV for SPH Reit is S$0.89. At an offering price of S$0.90, it represents a approx. 1% premium. Although I'm not a fan of paying something higher than its NAV but this valuation looks totally undemanding compares to its peers. Take a look at the table below and you will see that the premium you are paying for SPH Reit is so much lesser than if you are buying Fraser or Capitamall.

Note that although I include Suntec and Starhill in the comparison table, it is more fair to compare SPH Reit with Fraser and Capitamall. The reason being is that the earlier 2 names are mixed usage, retail & commercial, thus the share price is trading at a discount to its NAV. (a common trend for pure office play REITs)

4. Investment Highlights

Two highly visible and iconic assets. In an uncertain and volatile market like today, its is always safer in the investor's mind to buy things that you can touch and feel. Paragon is definitely one of the most iconic building in Orchard Road and we are all well aware how crowded Clementi Mall are, thus I think this 2 are definitely good long term assets to hold.

Undemanding valuation. Like I mentioned above, this offering price is not demanding at all compares to your Frasers and Capitamall. Although I won't say its cheap on a standalone basis, but comparing apple to apple, I think it is definitely cheap against Fraser and Capitamall with a higher yield.

Strong sponsor. Recall during the 2008-09 GFC, REITs was being beaten down due to refinancing concern. However, during the same period, only those REITs with strong sponsorship were able to get the necessary refinancing. So with a strong sponsor in SPH, I take some comfort with it.

5. Investment Risk

The dividend/carry play is OVER! If you recall the market action since last year, REITs was the best stock to hold in SGX as its rally like crazy. The madness continue till May until Mr Ben stay talking about QE tapering and anything that is offering a decent carry (like REITs & bonds) stays sell off. Although it has since recovered, a level of volatility has been introduced into the market and it really seems to me that the carry play is OVER!! Thus to continue to add on REIT or dividend play to your portfolio, it might not be worth the long term risk.

Income Support Agreement. As mentioned above, the ISA artificially creates a higher income for SPH Reit and make the overall HEADLINE yield looks higher than it actually is. But then at guaranteedrisk.blogspot.sg, I take it as my duty to point it out and explain for myself. This is actually a very common tactics used by a lot of IPO reits, thus I'm not too concern since I already know what I'm getting into.

6. Technical Analysis

Paragon and Clementi Mall. Do I need to say more. Technical support will definitely be strong.

7. Conclusion

Should perform on launch, but long term holding up to individuals. Frankly I think the carry play is definitely over. I will look for more growth prospect company to add into my Long Term portfolio holdings. It is not easy to find but that's why I started this blog to look for interesting and under-valued play.

Well, I think this should perform on launch and one can look to flip it if you are not holding it for the longer term.

If you are looking to hold it long term, you should take some comfort that Frasers and Capitamall trades at a higher premium to NAV and SPH Reit looks like a safer bet.

8. Timetable

From Company's Prospectus

9. Other Interesting Fact

Below is a table that shows the rental price for each major shopping district in the world. I think it is interesting as you will know how expensive it costs the next time you visit this cities =)

From Company's Prospectus