5 Things Investors Need To Know About Acromec Limited’s IPO

Credit: Simon Cunningham

One new company that will be appearing in Singapore’s stock market soon is Acromec Limited.

There have been only a handful of IPOs (initial public offerings) in Singapore’s stock market so far this year with security services provider Secura Group Limited (SGX: 43B) being one of them.

Here are four important things to know about Acromec’s IPO:

1. The nitty gritty

Acromec will be selling 27 million new shares of itself in the IPO at S$0.22 apiece. Of the 27 million shares, 25.5 million will be for private placements to certain investors while the remaining 1.5 million shares will be available for the general public.

Acromec is looking to raise S$5.94 million in gross proceeds from the IPO. Of that sum, 24.24% have been earmarked for expenses related to the IPO. Meanwhile, 16.84% of the gross proceeds are meant for expansion of the company’s business through either acquisitions, joint ventures, or entry into new geographical markets. The remaining bulk of proceeds – some 58.92% – will be set aside for the company’s working capital needs.

The offer closed at 12 noon on 14 April 2016 and shares of Acromec will begin trading on the Catalist board at 9am on 18 April 2016. At its listing price of S$0.22 per share, Acromec will have a market capitalisation of S$26.46 million at the IPO.

2. Business highlights

Founded in 1996, Acromec provides specialist engineering services for the design and construction of controlled environments such as laboratories, medical and sterile facilities, and clean rooms. The company also provides maintenance services for controlled environments.

Acromec’s customers come mainly from the healthcare, biomedical, electronics, and research and academia sectors. The company’s customers include Singapore General Hospital, A*Star, and P&G.

3. Financial Highlights

Acromec revenue and earnings chart
Source: Acromec’s IPO prospectus

From the chart above, it can be seen that the company’s total revenue has been volatile over its past three completed fiscal years (Acromec’s fiscal year ends on 30 September), swinging from a high of S$44.9 million in FY2013 to a low of S$23.1 million in FY2014.

The company’s profit picture looks smoother, with growth in the bottom-line in both FY2014 and FY2015. Between FY2013 and FY2015, Acromec’s net profit has grown at a compound annual rate of 14.5% from S$2.58 million to S$3.38 million. Given relatively consistent profit growth and yet volatile revenue, it’s no surprise to find that Acromec’s net profit margin has fluctuated wildly too, from a low of 5.7% in FY2013 to a high of 12.0% in FY2014.

On the cash flow front, Acromec had generated net cash from operating activities of S$3.5 million, S$4.5 million, and just S$1.8 million in FY2013, FY2014, and FY2015, respectively. So in a similar manner to revenue, Acromec’s cash flow is also volatile.

As of 31 January 2016, Acromec’s balance sheet holds S$18.2 million in cash and equivalents and zero debt.

4. Future growth plans

Acromec is looking to grow its business through four main ways:

  • Securing more as well as larger projects – The company believes that the Singapore government’s initiatives to support the healthcare, biomedical, and research and academia sectors, along with the development plans of private organisations in those areas, “will create business opportunities” for it
  • Vertical integration – Acromec currently outsources the installation works for its projects. But, the company plans to establish an in-house installation team. It is also considering investing in a fabrication workshop to fabricate laboratory furniture. Acromec believes that these moves to vertically integrate its business even further can help lower its costs and sharpen its quality control.
  • Boost recurring income – The company wants to obtain more maintenance contracts for projects that are not built by it. Such business can provide recurring income streams for the firm.
  • Inorganic expansion and entry into new geographies ­– Acromec “may consider” acquisitions, joint-ventures, and strategic alliances as a way to grow its business. The firm is also looking at expanding into countries such as Indonesia, Malaysia, Myanmar, and Vietnam. These countries are “still developing their healthcare and cleanroom infrastrcutre” and Acromec believes that “these markets are poised for growth in the foreseeable future.”

5. Dividend policy and valuation

At Acromec’s listing price of S$0.22 per share, the firm’s valued at 7.8 times its earnings per share for FY2015 (after adjusting for the new shares to be issued at listing). To give this figure some context, the SDPR STI ETF (SGX: ES3) – an exchange-traded fund which tracks the fundamentals of Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI) – has a price-to-earnings ratio of 11.9 as of yesterday.

Acromec does not have a fixed dividend policy at the moment, but the firm intends to distribute at least 20% of its net profit in FY2016 and FY2017 as dividends.

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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.