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4 Things You Should Know About Soo Kee Group’s Upcoming IPO

Credit: Simon Cunningham

Following in the footsteps of some of Singapore’s latest initial public offerings (IPOs) like Choo Chiang Holdings Ltd (SGX: 42E) and NauticAWT Limited (SGX: 42D), Soo Kee Group is the next in line to list its shares.

Founded in 1991, Soo Kee Group may be a familiar name for Singaporeans given that it’s an established jeweller with more than 60 retail stores in total in Singapore and Malaysia. The company has three core brands under its umbrella, namely, Soo Kee Jewellery, SK Jewellery, and Love & Co.

With that, here are four things about Soo Kee Group’s IPO you might want to know.

1. The nitty-gritty

Soo Kee Group has placed 112.5 million shares of itself on offer. Of that, only 9 million shares (8% of the total) have been made available for the general public while the remaining 103.5 million shares will be sold via placements to select investors. The 112.5 million shares on offer constitute 20% of Soo Kee Group’s enlarged post-IPO share count of 562.5 million shares.

At Soo Kee Group’s offer price of S$0.30 per share, the firm will have a market capitalisation of S$168.8 million.

Applications to subscribe for the IPO shares are already open and will actually close at 12 noon today. Soo Kee Group’s shares are excepted to begin trading on the Catalist board at 9 am on 20 August 2015.

2. Business highlights

As mentioned above, Soo Kee Group’s a jewellery retail outfit with three different brands.

But to drill down deeper, Soo Kee Group’s different brands actually aim to capture different segments of the market. Soo Kee Jewellery’s main clientele are upscale consumers while SK Jewellery is for the mass market. Meanwhile, Love & Co.’s focus is on bespoke bridal jewellery, in particular, engagement rings and wedding bands.

Singapore’s currently Soo Kee Group’s largest geographical market, accounting for 85.7% of total revenue for the financial year ended 31 December 2014. The remaining 14.3% of the revenue pie belongs to Malaysia.

The IPO will provide Soo Kee Group with gross proceeds of around S$33.8 million and here’re the company’s plans for that new capital:

  1. Expansion of retail stores and the introduction of new innovative product designs (35.6% of gross proceeds)
  2. Capital expenditure for new headquarters situated in Changi Business Park in Singapore (8.9% of gross proceeds)
  3. Repayment of bank loans that’s connected to the construction of the new headquarters (17.8% of gross proceeds)
  4. Working capital and general corporate purposes (31.3% of gross proceeds)
  5. IPO-related expenses (6.4% of gross proceeds)

Soo Kee Group’s planned usage of the new capital from its IPO is indicative of its future plans. The company intends to grow its business mainly by introducing a wider range of jewellery products and expanding its retail store base.

The new headquarters at Changi Business Park, which will house Soo Kee Group’s jewellery product design and development facilities and equipment under the same roof, can help aid the firm in its quest to come up with innovative new jewelleries.

That said, investors should also be aware of the potential challenges facing Soo Kee Group. In the “Risk Factors” section of Soo Kee Group’s IPO prospectus, it was mentioned that the firm’s “revenue is particularly sensitive to changes in economic, business and market conditions and consumer confidence in Singapore and Malaysia.” That makes intuitive sense given that the jewellery business is considered discretionary; lesser purchases are to be expected when times are hard.

With Singapore’s economy in 2015 estimated to be expanding at the slowest rate since 2009, investors may want to keep an eye on how Soo Kee Group’s business may be affected in the near-term at least.

3. Soo Kee Group’s financials

As is common with most IPO prospectuses, Soo Kee Group’s listing document had provided its financials for the last three years (2012 to 2014 in this case).

Although the firm’s revenue has not grown much from 2012 to 2014 (it stepped up by just 3.9% from S$129 million to S$134 million), profit from continuing operations actually managed to jump some 55.5% in total from S$6.95 million to S$10.8 million.

On the cash flow front, Soo Kee Group’s picture looks to be a little messier. The firm ended 2012 with a negative operating cash flow of S$12.6 million, a figure which then proceeded to improve to a positive S$4.3 million in 2013 and S$14.1 million in 2014.

Meanwhile, Soo Kee Group does not have the strongest of balance sheets. The jeweller ended 2014 with total borrowings (including finance leases) of S$27.2 million and cash on hand of just S$8.5 million. The positive thing though, is that the firm’s balance sheet has become steadily stronger over the past three years from 2012 to 2014, as you can see below:

Soo Kee Group balance sheet

Source: Soo Kee Group’s IPO prospectus

Investors will also need to take note of the exchange rate between the Malaysian ringgit and the Singapore dollar since more than 14% of the firm’s revenue comes from Malaysia, as mentioned earlier.

Foreign-exchange-related losses of S$763,000 and S$651,000 had hit Soo Kee Group in 2013 and 2014 respectively. A further depreciation of the ringgit against the dollar will act as a headwind against the firm’s financials since it’s reporting in the dollar.

At the moment, Soo Kee Group does not have a “formal foreign currency hedging policy.” The firm’s monitoring the foreign exchange situation and will utilise hedging instruments if and when management feels that there’s a need to do so.

4. Dividend policy and valuation

Soo Kee Group does not have a fixed dividend policy, but the firm intends to distribute at least 20% of its net profit in 2015 and 2016 as dividends.  For some perspective, with a 20% pay-out ratio, we’re looking at a dividend of around 0.38 cents in 2014 (based on an earnings per share of 1.9 cents in 2014 after adjusting for the post-IPO share count). This translates to a dividend yield of 1.2% on Soo Kee Group’s listing price of S$0.30.

At that price, Soo Kee Group is also valued at 15.8 times its EPS in 214. To give this figure some context, the SDPR STI ETF (SGX: ES3) – an exchange-traded fund which tracks Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – is valued at around 12 times its trailing earnings at the moment.

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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 James Yeo doesn’t own shares in any companies mentioned.