As seen on Newspaper! My contribution to “How to pick a winning IPO” or “投资IPO 如何“趋吉避凶”?”

to investing in winning ipo newpaper article

investing in winning ipo newpaper article

Got my first request to contribute to a local newspaper!  The article was published on the  ZaoBao financial section ok! Don’t play play. 🙂

The journalist asked me if I could help contribute my thoughts of IPO investing and of course I said “sure!” So here is the full answers I gave from the questions he asked.  Down below you can find the actual news write up.

Hope you enjoy this article!

 

What are the factors an investors should take note of while investing in IPOs?

When investing in IPO, the factors that we need to consider are very similar to investing in any other listed company. Except that we do not have the luxury of price and company information history. That can be a great disadvantage as investor can only depend on the limited information provided by the company on the prospectus. So in those sense, risk in IPO investing are higher.

 Many IPO prosectus are extremely thick and packed with information. How can an investor get an accurate snapshot of the company as well as extract important and pertinent information without going through every single words in the prospectus?

For different industries, you will have to focus on different sets of numbers to truly understand the strength of the company. There is no one standard answers for all types of company. But in general, for most companies, you should always ask yourself these questions:

  1. What is the competitive moat of that company? Is it their brand name, management team or patent? Essentially, asking if they will face strong competition in the same industry.  One of the strongest competitive moats is brand name. Having a good brand name will intrinsically mean they have been around and have the resilient to weather the ups and down of the economic cycle.
  2. How are their key financial ratios? Investors should look beyond revenue, profit and compare key ratios like PE with competitors in the same industries. This will give you a much better indication if you are overpaying for the shares. Again, for different industries, you should focus on different ratios.
  3. Where is the company going to spend the raised funds? If you see that most of the raised funds are to pay down debt, it sends a signal that they do not have growth plans in the near future.
  4. What is the potential growth potential of this company? This, I think is the most important factor. Because when you are investing in a company, you are essentially investing for the future not the present. So it is therefore very important for you to understand the potential for growth. They maybe a very strong player for now. But if their business model or nature of their company do not enable them to expand, that will mean limited upside.

 What should the investors take into consideration beyond IPO prospectus?

One other important factor is market sentiment. If you put yourself in the shoe of the company, would you want to list when the market is buoyant or when it is down? The answer is obvious.  The company would definitely want to list at a time where maximum value can be extracted. After all, you can only list one time! So it is not uncommon to hear company pull out of listing at the last minute. One recent example is Dynasty REIT, where they suspended the offering due to “market condition”.

Using local IPOs as example, how could one buy into winning IPOs such as Google, and and avoid the pitfalls as seen in IPOs like that of Facebook?

You chose a very interesting pair of companies for comparison. There are already a lot of articles written about them and many reasons why FB did poorly, but I will try to relate the answer to one of factors mentioned when considering IPO.

  1. Valuation and Financial ratios.
    1. From the key financial summary table below, you can see that by just looking at the revenue and income, Facebook does look attractive as their profit margin is twice that of Google. But if you go one step further and calculate just 2 financial ratios, you will see the story is quite different. With the Price-to-revenue ratio of 23.7X, the expectation is that FB is going to grow 2 or 3 times faster than Google. Is that reasonable? To answer that you will need to dig further to see the revenue growth prior the IPO. In Google case, the revenue growth was around 125% to 234% in 2003 and early 2004. That was the reason to justify the very high PE ratio. But for FB, the highest revenue growth was only 88% from 2010 to 2011.  In fact revenue growth in the last quarter before IPO was flat! So just by looking at those ratios, it should set investor’s alarm bell ringing very loud.
Google Facebook
Annualized revenue before IPO $2.7B $4.38B
Annualized net income before IPO $286M $1.14B
Profit margin ~10% ~26%
PE 80.5 X 91.2 X
Price-to-sales 8.5 23.7X

 

  1. So if the ratios are so unattractive why are their still people buying the stock? It boils down to market hype. A lot of investors are comparing FB to Google and do not want to miss out the opportunity to ride on the explosive trend demonstrated by Google. But many of them didn’t realise that unlike Google, Facebook did not have the growth track record to support the high valuation.

 What is your outlook on the current IPO markets and the year ahead both locally and globally?

In the recent IPO report by Ernst & Young, they reported a slow down in 2012 Q3 global IPO deal value and volume. Compared to last year, the value of deals has dropped by as much as 46% and volume by equally the same percentage. Not surprisingly most of the IPO deals are from Asia, followed by US and than EMEA. But moving forward they expect the IPO in Q4 to pick up especially for Asia. There are about 200 Asian companies in the IPO registration pipeline which accounts for more than 50% of global IPO pipeline!

Singapore is no different. There is an expectation that we will see more REITS and Business Trusts surfacing. This is mainly due to the very positive demand for high yielding shares in part due to the many monetary easing policies globally. Investors now are very hungry for investment to grow their capital in this low interest and high liquidity environment.

Good news for investors is that we will have more options for investment, but we also need to be extra careful in picking company with the right valuation and not those with inflated assets that will leave you high and dry when crisis strikes.

 

Here is the actual Chinese newspaper version:

理财锦囊
发售IPO是企业首次向公众售卖其股份筹集资金、扩展业务的一种方式。不过,由于首次公开售股并没有历史股价可作参考,投资者应该如何从厚重的招股书中快速洞悉内容?招股书之外,还有什么学问?
面簿IPO的灾难是许多投资者避之唯恐不及,偏偏有不少投资者一开始都奢望谷歌IPO的奇迹能够再次发生。投资者应如何“趋吉避凶”呢?
@韩宝镇
hanpt@sph.com.sg今年,本地共有24只首次公开售股(Initial Public Offerings,IPO),截至本月15日,其中至少八只的股价已低于发售价。24只IPO中,澳大利亚石油、天然气与矿业工程公司Civmec增幅高达187.5%,但中国石膏开采公司新开集团(Sincap)则下挫59%。
发售IPO是企业首次向公众售卖其股份筹集资金、扩展业务的一种方式。投资者可以通过招股书了解发行首次公开售股(IPO)的公司。
理财网站MasterYourFinance培训员刘健明指出,投资IPO跟投资其他上市公司大同小异,唯一的差别是缺乏有关公司历史股价及资料记录。
他说:“这可能大大不利于投资者,因为投资者只能依赖公司在招股书中提供的有限资料。这么一来,投资IPO的风险更大。”
厚重招股书不知从何下手
招股书是投资者了解即将上市公司的重要来源,可是招股书似乎越来越厚重,可能让人觉得一时 不知从何下手。
例如,印度尼西亚棕榈油生产商布米达马(Bumitama Agri)的招股书就厚达448页,而马来西亚综合保健股票IHH保健(IHH Healthcare)不遑多让,厚达667页。
那么,投资者要如何从眼花缭乱的招股书资料中,快速地将公司的主要情况掌握清楚呢?刘健明提出了以下几个方面:
一、竞争优势:可以是品牌、管理团队和专利权。品牌有时反映在招股书的“无形资产项目”之下。如果招股书提到品牌,那么就意味着公司的估价有把这一点考虑在内。
最大的竞争优势可以说是品牌,因为这代表公司已经存在有一段日子,经历了上下浮沉的经济周期仍然屹立不倒。
二、主要财务比率:投资者不仅要看营业额和盈利,还要以该家公司的本益比(PE ratio)跟同一行业的本益比做比较。本益比的计算方法是把公司股价除以每股收益,而IPO本益比则是以发行价除以每股收益。
不同的领域要留意的财务比率也不一样。例如,投资者都想知道多数公司的本益比,但对于房地产股票则不太适用,因为房地产公司的营收具周期性。对于重资产(asset heavy)公司,投资者必须特别留意的是净资产值(NAV)和资产负债率(debt to asset ratio)
三、筹集资金的目的:公司打算如何使用所筹集到的资金。如果当中大部分是用来清还贷款,那么就意味着该公司在短期内并没有增长计划。
四、增长潜能:投资一家公司其实就是投资它的未来,因此这是一项最重要的因素。
汇丰私人银行(HSBC Private Bank)董事经理兼亚洲投资战略主管马亨德兰(Arjuna Mahendran)指出,IPO的信息不对称是常会发生的问题。投资者必须花一些时间研究和明白该IPO的价值主张。他们应该阅读招股书,对有关IPO进行精密审核。
招股书包括了一些非常重要的信息,如公司过去几年的表现、现在的拥有者、发售股票的数量以及如何处理从IPO筹集到的资金等。
要从IPO赚钱 须适当评估风险
有句话说“尽信书,不如无书”,那么在招股书之外,投资者还要注意些什么?
马亨德兰指出,投资者要从IPO赚钱,适当的教育和谨慎的研究是不可或缺的。研究应该包括对于投资某一个IPO进行风险测量。业务、财务和市场风险是评估过程中的考虑因素。
他说:“研究财务风险涉及检验公司的财务报告、资本结构,以及其他财务数据。”
另外,投资者也要知道IPO的“锁资时限”(lock-up period)有多长。这段时期介于三个月至24个月。
问题是,一旦“锁资时限”到期,所有局内人都获准脱售股票,而这往往引起局内人抛售套利的情况,结果多余的供应对股价造成下行压力,不利于投资者。
谈到投资IPO的陷阱,马亨德兰指出,面簿IPO突显了标价过高的危险性。
如果股票是以高于市场愿意支付的价格卖给公众,那么包销商(underwriter)在履行售股承诺方面,可能会有困难。即使它们卖出所有的发售股,股票在第一天交易日也会跌破发售价。如此一来,股票可能失去它的可销售性甚至价值,造成投资者蒙受损失。
今年本地的IPO市场,可以说是有人欢笑有人愁,背后的原因对未来有意投资IPO的投资者或许有些启示作用。
马亨德兰指出,布米达马自4月上市以来的表现不俗,股价 已上涨近50%。
原因是投资者喜欢它的“亚细安主题”,而近来软商品(soft commodity)价格的上扬也起了推波助澜的作用。软商品是指大豆、牛奶、肥料、大米等商品,它们通常与日常生活息息相关。
相比之下,中国综合住宅与商业房地产发展商Starland控股虽然几乎在同一段时期上市,可是股价却下跌了50%。部分原因源于账簿管理人(book-runner)对重庆房地产市场前景的错误评估。人们对于中国股市的普遍悲观情绪也拖累了Starland。

So you can see the actual article published is less than what  I provided.. 🙁  I guess he have to censor something and make the article more readable.  Oh and I did not contribute in Chinese. I did it in English and he did all the translation! 🙂

 

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