Sheng Siong Group

[CityFarmer]

They probably find it easier to buy than to overcome the odds stacked in favour of Fairprice when it comes to rental of choice locations in new estates.

Considering the share price trade at a quite a good multiple to earnings it makes sense to do a placement to raise funds rather than cut dividends and redirect internally.

Yes, agree. I should be able to collect growing dividends in the next 3 FYs.

The choices are, IMO
- Internal resources, but might impact the dividend payout, which is the choice I assumed.
- Cash call, but dividend payout ratio remains, which is the choice opted

There is a good reason to mentioned dividend payout together with the placement in the same announcement

(vested)

[specuvestor]

Ops. I am wrong in assuming the company is able to support the new Singapore strategy with internal resources. The company has to go with placement route instead.

How wrong am I? The placement is at 5.37% discount, and with dilution of close to 8%. Well, it seems not too wrong I am, with the anticipated growth of the new Singapore strategy.

The SGX announcement is here
http://infopub.sgx.com/FileOpen/2014%200...eID=313647

(vested)

Sheng Siong plans placement of 120 mil shares at 67 cents each to raise $80.4 mil

Sheng Siong Group is proposing to place out 120 million shares at 67 cents each.

The placement price represents a discount of 5.37% to the volume weighted average price of $0.708 for trades done on the SGX on Sep 3.

The placement shares represent 7.98% of the enlarged issued share capital of 1.5 billion shares after the issuance and allotment of the new shares.

The placement will allow the company to raise gross proceeds of $80.4 million.

The group intends to use 98% to 99% of the gross proceeds will be used to finance the future expansion plans of the group in Singapore which includes the acquisition of properties for new retail outlets.

Sheng Siong says it intends to continue to distribute up to 90% of its net profit after tax to its shareholders for the financial years ending 31 December 2015 and 31 December 2016 as dividends.
http://www.theedgesingapore.com/the-dail...4-mil.html

They probably find it easier to buy than to overcome the odds stacked in favour of Fairprice when it comes to rental of choice locations in new estates.

Considering the share price trade at a quite a good multiple to earnings it makes sense to do a placement to raise funds rather than cut dividends and redirect internally.

Yes, agree. I should be able to collect growing dividends in the next 3 FYs.

The choices are, IMO
- Internal resources, but might impact the dividend payout, which is the choice I assumed.
- Capital call, but dividend payout ratio remains, which is the choice opted

There is a good reason to mentioned dividend payout together with the placement in the same announcement

(vested)

What was unexpected is that we had expected them to take on some mortgage debt for the buying of proprties. If they funding it with equity their ROE will collapse as discussed. I think they figured with their current ROA of 18% they can afford 8% dilution and maintain their payout

[thefarside]

What was unexpected is that we had expected them to take on some mortgage debt for the buying of proprties. If they funding it with equity their ROE will collapse as discussed. I think they figured with their current ROA of 18% they can afford 8% dilution and maintain their payout

Hi, they have so far announced two big buys
Yishun - c. $55mil in stages leading up to 2017
Tampines - $65mil completion due in Sep-14

The placement funding is probably (partially) for Tampines - the completion of the Tampines transaction should be anytime about now (12 weeks from June where the option was taken up). Too early to say if the management is not going to take on debt for the purchase - you will know in 3Q statement when that comes.

My preference is for them to save some bullets and buy some more, preferably in greenfield estates where there is a new catchment and no competition. My other speculation is the Jurong site (opposite old Tang Dynasty City) may come under redevelopment and they might be saving some $$$ to put up capital for that project in exchange for a mega hypermart in that location.

[CityFarmer]

What was unexpected is that we had expected them to take on some mortgage debt for the buying of proprties. If they funding it with equity their ROE will collapse as discussed. I think they figured with their current ROA of 18% they can afford 8% dilution and maintain their payout

Yes, it is a choice of dividend payout ratio vs. ROE.

FYI, ROE/ROA was 26%/16% in FY2013. The management has decided to keep dividend payout ratio, with the expense of ROE/ROA. How bad the ROE/ROA will be?Let's see the outcome in FY2014.

I am happy as OPMI, knowing that the management is concern on the dividend payout, rather than chasing ONLY the performance (ROE/ROA)

(vested)

[CityFarmer]

The Placement Agent, J.P. Morgan (S.E.A.) Limited, has "placed" the 120 mil share to public? The up-to-minute volume today is more than 177 mil shares.

The settlement date is later, but the Share Lending Agreement, allows the Placement Agent to "place" the share out with borrowed shares.

The placement will increase the liquidity of the company share.

(vested)

[Bubbachuck]

Some other view regarding this from the fools.

http://www.fool.sg/2014/09/04/why-has-sh...-6-today/

[brattzz]

"The 120 million new shares represent about 8.7% of the company’s current share count of 1.38 billion."?

waos! :O

[mobo]

There seem to be many opinion pieces out there quoting the NAV decrease from 10.83c to 9.96c ad verbatim without explaining that this is a result of a quirk in accounting assumption. This quirk arises as a result of the settlement mechanism of the lend cum settlement structure as opposed to a direct placement of new shares.

Readers should take note that the pro-forma NAV post placement will increase substantially as new shares are placed out at a significant premium over current book value of 10.83c. This amount will eventually be capitalized and increase the overall NAV above 10.83c even with the enlarged share base.

[CityFarmer]

There seem to be many opinion pieces out there quoting the NAV decrease from 10.83c to 9.96c ad verbatim without explaining that this is a result of a quirk in accounting assumption. This quirk arises as a result of the settlement mechanism of the lend cum settlement structure as opposed to a direct placement of new shares.

Readers should take note that the pro-forma NAV post placement will increase substantially as new shares are placed out at a significant premium over current book value of 10.83c. This amount will eventually be capitalized and increase the overall NAV above 10.83c even with the enlarged share base.

A good point raised.

I reckon the concern is not on NAV dilution, but more on the earning dilution.

(vested)

[Yoyo]

Is there really an earning dilution? The premise of earning dilution is if the newly placement proceed is put to lesser rewarding investment. IMO, it is more of gearing issue, to grow by equity or borrowing. I do not view this share placement negatively.

(not vested, watchlist)