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AsiaPhos On The Rise

Up ArrowIn an otherwise lacklustre day in the Singapore stock market in which the Straits Times Index (SGX: ^STI) was flat at 3,138 points, new kid on the block AsiaPhos Limited (SGX: 5WV) has been turning heads with a 60% rise to S$0.40.

The company, a phosphate-rock miner, made its debut on the Catalist stock exchange this morning at S$0.25 a share. The popular Initial Public Offering was 3.8 times over-subscribed.

Some 122m shares were sold to the public at the flotation price, of which almost 98m are newly-created shares, which bring total share count to 800m.

If AsiaPhos’ can maintain its share price when the market closes, then it will have registered the best opening-day performance of any newly-listed shares this year. Here are some of this year’s other debutants.

Company IPO date Offering Price Closing Price After   The 1st Day of Trading Share Price Gain
AsiaPhos Limited 7   Oct 2013 S$0.25 S$0.40* 60%
ISO Team Limited (SGX:   5WF) 12   Jul 2013 S$0.22 S$0.345 57%
Soilbuild   Construction Group (SGX: S7P) 27   May 2013 S$0.25 S$0.36 44%
MoneyMax Financial   Services (SGX: 5WJ) 2   Aug 2013 S$0.30 S$0.43 43%
*AsiaPhos’   closing share price of S$0.40 is taken at the time of writing (2:30pm)

Source: SGX.com

But despite AsiaPhos’ stellar return so far for early investors, others who might be thinking about jumping onto the IPO bandwagon should tread carefully.

Chief among those will be the valuation of the company’s shares in the offering process.

AsiaPhos’ IPO prospectus showed that, at a price of S$0.25 per share, its shares are valued at 156 times historic profits using its pre-IPO share count. Adjusting for the enlarged share-count after the listing would increase AsiaPhos’ PE ratio even further. And we have not even factored in the 60% price increase, which would increase its PE ratio even more.

A superficial reading of a share’s price-to-earnings ratio is certainly an oversimplification when valuing a company. But, at the same time, a simple glance at AsiaPhos’ documented PE ratio reveals how important it is for the company to grow its profits rapidly.

We have recently seen examples of share prices collapsing dramatically due to unsustainably high valuations in Blumont Group and Asiasons Capital. There is lesson there for all of us.

So, those who wish to invest in AsiaPhos now might want to keep up with the global phosphate market. That is in addition to learning more about AsiaPhos’ ability to set up P4 processing plants, if they are to have confidence in the company’s ability to grow at a rate that would justify its valuation.

Understanding a business is of a paramount importance in investing – don’t be part of a stampeding herd just because the shares have risen.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.