Thursday, 16 March 2017

Kimly Limited IPO - Balloted



You've probably heard of the saying IPO, instead of Initial Public Offering, stands for It's Probably Overpriced. The owners of the companies that chooses to go for IPO will only list the stock if they have the impression that they are able to gain something from listing, be it excess funds to expand the business or reduce debts, obtaining public status deeming them easier to clinch public tenders, etc. The owners are offering part of their business to public shareholders and obviously won't do it at a price that is not favourable to them. On their part, they have to access what is a reasonable premium to price it such that market participants will not be turned off by unfair valuations.

So why did I choose to ballot for this IPO?

1. Mr IPO rated it highly
The expert in this field is vested in it via way of placement and gave it a rating of 3 Chilis. I had been following him for some time, reading up on his analysis (usually just scroll down to the end and read how many chilis he's giving the IPO) of IPOs and generally, he seldom make the wrong calls. He also openly declare if he is vested in the IPOs so readers can make a fair judgement. Despite being vested, he still gave an objective view of the business nonetheless (that's what I feel).  

2. Issue price of $0.25 
Figures obtained from sgx.com
$0.25 is the price that Jumbo Group Limited, Singapore O&G Ltd as well as MM2 Asia Ltd chose to list their shares. If you held onto these 3 stocks from IPO or bought them on the first day and held until now, you would have gotten some multi baggers in your portfolio.

3. Good management team
The track record of the management speak for themselves. They manage 56 coffee shops, 3 industrial canteens and 5 food courts in tertiary institutions. On top of that, they also operate 121 food stalls including 36 mixed vegetable rice stalls as well as 43 dim sum stalls. Here's the clincher. They have no debts in their balance sheets. Expansions don't take place overnight meaning which, they grew their business bit by bit without leveraging and using the cash generated from their business. This shows they are prudent with handling cash and with the added funds from the IPO, ceteris paribus, they should be able to expand their business further prudently.

4. Mismatch of demand and supply
Cornerstone investors, Vanda and ICH have a lock in period before they can sell their shares. Public tranche is pitiful at only 3.8m shares whereas placement shares amount to 173.8m shares. Hence, people like me who balloted for the shares actually got a very low chance of getting any. The lucky few who managed to be allotted will probably not have too many shares until that they are comfortable with. Therefore, the people on the street who really want a part of this business will have to purchase it through the open market when it launch on Monday. I feel that demand for this IPO is likely to be strong given that they have presence over Singapore and it is a business that is easy to understand. Hence there is a mismatch of demand and supply.

The above 4 points are why I balloted 208k shares. 

Strategy
My strategy for this IPO is simple. 
Allocated = Keep for long term. Set "stop loss" to the opening price or the closing price, whichever is higher. 

Not allocated = Will probably not chase this stock despite high chances of contra gain  

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