Review: IPO SunVic Chemical
In the recent "Edge", SunVic was hailed as an IPO that would open at $0.60 on day 1 of trading. Thats 100% gain from its IPO of $0.30. But here is why i think China Farm is a better choice over SunVic.
From their prospectus, you can see that from FY03 to FY05, the company's profits has increased at a good rate, backed by increase in revenue. If you based your IPO choice based on that, it might seem as a good choice to put your money at. However, look closer.
For HY05 to HY06, there has been a decrease from $118.7M to $63.3M. From that, my bet is that the FY06 profits will not show a growth over FY05. Infact, there would be a shrink in profit.
"No growth? Move on."
Based on my experience on IPOs, prior growth is extremely important for its share's open price, and of course future price appreciation. For Eg, Sino Env opened at $0.40 (ipo at $0.33), and quickily went to $3.00 in half a year due to its prior growth records and sustained growth after IPO.
vs
Sunshine Holding that had inconsistant growth before IPO, and IPO at $0.3, opened at $0.4, now $0.345.
Thai beverage public co as well.
Its my belief that SunVic Chemical is a good stock to apply for in IPO, but my money goes to China Farm, with the intention to keep the share for 1 year. SunVic Chemical would be a day 1 play for me, if I have even applied for SunVic Chemical's IPO.
2 comments:
Hi there,
From your analysis, it does appear strange that HY profits were down for FY 2006. For myself, I usually use GP margins and NP margins to gauge the competitiveness of the industry in which the company is operating in, in addition to profits for the year so far. This is because a company may always have a "blip" year which does not perform as well as previous years due to an exceptional loss or one-off write-off. This does not necessarily mean that its fundamentals are not sound or that it has no long-term growth prospects.
I prefer to look at the macro view fo a company; its environment, competitors, customers, industry, margins, products and stakeholders in order to make a decision.
Even then, I am wary of IPOs due to the lack of track record of the company. Most companies choose to IPO at the peak of their performance and after that, start to decline. I will usually wait for at least 2 quarterly results, read the MD&A and analyze the ratios before deciding to invest i a company.
I'll prefer to look at a micro point of view, ie the company's earnings, then the industry. Theres no use for the industry to grow by 100% if the company doesn't have the showing of tapping the growth. But htats just me.
But one thing to note for china farm, there isn't any more recent reports other than what sunvic had. so thats one thing to look out for. I've sent a mail to them asking them for a later perfomance, but as usual for all listed companies, they don't really entertain retail investors.
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