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Monday, 18 October 2010

Mun Siong's IPO






With 2 large IPOs happening in the last week, the IPO calendar is much lighter with 2 smaller firms trying to capitalize on hot market sentiments to get some capital. While i will recommend investors to invest in the previous two IPOs given the strong backing (MapleTree has Temasek, while GLP has GIC) that they have and the diversified customer base they have. However i beg to differ in Mum Siong's case.

As mentioned in their prospects (Pg 101), 22.5% of their revenue is derived from Electrical Engineering and that segment contributes 39% of their profits. However, one must also take note that majority of this segment's revenue and profits (66%) is derived from one customer (Mitsubishi) through one project which ends in FY 2010. What happens next when the contract ends? There is no backlog of orders to ensure the orders keep coming for this segment of the business. There are also no maintenance contracts which will further ensure the sustainability of their profit and revenue.

For the Mechanical Engineering segment, it is another risky segment for Mun Siong. Because 73% of their profits and revenue is derived from one customer (Shell). Furthermore, the huge spike of about 30% is due to one project and they did not state the end date of the project, giving rise to doubts over the sustainability of their profits. The 42% that they have with Shell that comes from maintenance is something that the business should look forward to getting more of. Similarity for Exxo's case.

They also mentioned that 50% of their revenue is derived from projects. Mostly are one time off project. This throws further uncertainty in the business.

Lastly, the IPO price is way too expensive. They have stated that the NAV of their shares is 8.38 cents, whereas their IPO price of 20 cents is 286.92% more expensive. I do not see the reason for such a high premium, even MapleTree Industrial Trust's IPO is just 4% premium.

Just my two cents worth, hope it aids in your investment choice. However, please refer to your professional adviser if you have doubts. I bear no responsibility for any loss incurred arising from my advice.

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