Shares & Derivatives
Soon Lian Holdings IPO.
By Kleer  •  December 8, 2007
By: Kleer Closing date of application: 11 December 2007 Commencement of trading: 13 December 2007 Established in the 1980's, Soon Lian is a specialist supplier of over 1,200 different aluminium alloy products, mainly sold to the marine and precision engineering industries. They also sell their products to other aluminium stockists and traders, as well as customers in other industries. Over the years, they have built a diversified clientele with over 1,000 customers in more than 15 countries within Asia. Their use of products is depicted in the illustration below: Key Competitive Strengths:
  1. They currently generate approx. 89% of their revenuefrom the marine and precision engineering industries, which are niche markets which provide better profit margins.
  2. They have strong relarions with their major suppliers, having been awarded distributerships by Alcoa, Alcan, Elval, Merrem, LB Aluminium, and PT Sri Indah, and appointed by Hukamin as an approved stockist.
Key Growth Plans:
  1. They established a warehouse cum office in Penang in Oct 2007 so as to better serve their customers the Northern West Malaysia.
  2. To commence operation of their Indonesian office, and to explore expanding into Vietnam and UAE in 2008.
Key Risk Factors:
  1. Because their entire product line is made from aluminium, their revenue is directly affected by the fluctuations in aluminium price.
  2. They carry a high level of inventories - approx. 54.7% of their total assets - which if not converted to sales, can affect their profitability.
Financial figures Intended IPO price: $0.21 No. of shares available for public offer: 1m No. of shares available for placement offer: 26m Total post invitation share capital: Approx. 108m Note: Unaudited 2QFY2007 figures were available in the prospectus. FY2006 Revenue: $31m Profit: $3.3m NAV: 0.089 EPS: 0.03 EPS % Incr: 130% PE ratio: 7x Price: 0.21 2QFY2007 Revenue: $39.6m Profit: $5.4m NAV: 0.105 (incl. IPO proceeds) EPS: 0.05 EPS Incr: 67% (Est.) PE Ratio: 4.2x Price 0.21 Dividend policy: No fixed policy. Conclusion: Soon Lian's closest comparable on SGX would probably be AEI Corp, an aluminium alloy profiles manufacturer which services the electronics and precision engineering, and construction and infrastructure building industries. Both companies are also very similar in terms of revenue volume generated and profit margin. As such, based on AEI Corp's historical PE, I believe Soon Lian should trade at a Fair Value of $0.375 or 7.5x PE only. This gives us a very healthy potential 75% upside to its IPO price. Unfortunately, there is only a ridiculous 1m shares on public offer, which means the chances of being alloted via its IPO are close to nil. Probability of getting allotted for the IPO - VERY LOW I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here. Source: Extraordinary Profits
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