Ifrit2020 - fundamental analysis
Lotte Chemical Titan relaunch IPO at RM6.50, Good or Bad for the applicants? - Ifrit2020
For many investors, the only real exposure they have to the IPO process occurs a few weeks prior to the IPO, when media sources inform the public. How a company gets valued at a particular share price is relatively unknown, except to the investment bankers involved and those serious investors who are willing to pour over registration documents for a glimpse at the company's financials.
The company tries to walk a very fine line. In THEORY, it should want the IPO price to be as close to the "opening market" price as possible, because that would mean that whatever value the market assigns to the stock will go directly into the company's bank account (since the only thing it gets directly are the proceeds from the first sale.) HOWEVER, the last thing it wants is for the market price to be lower than the IPO price, because that implies that the market thinks the company was overvalued, and once downward momentum starts, it may well be the only thing people remember about the IPO (just like FGV).
Another aspect of IPO valuation is industry comparables. If the IPO candidate is in a field that already has comparable publicly traded companies, the IPO valuation may be linked to the valuation multiples being assigned to competitors. The rationale is that investors will be willing to pay a similar amount for a new company in the industry as they are currently paying for existing companies. In this case Petronas Chemical was which they compare themselves to.
In addition to viewing comparables, an IPO valuation depends heavily on the company's future growth projections. Growth is a significant part of value creation and the primary motive behind an IPO is to raise more capital to fund further growth. The successful sale of an IPO often depends on the company's plans and projections for aggressive future growth.
So therefore, the company tries to err somewhat in the other direction, and price the IPO about 10-20% below where they think the market really is, because that way, if they guess correctly, the price of the stock will immediately rise, and the market will be signaling that it's a hot company, thereby making the overall company more valuable.
Lotte Chemical Titan (LCT) had offered an initial IPO price at RM8.00, which they THINK the market value of its price would be around RM8.80 according to the theory above and compare to PChem. Their confidence may also boosted by the recent overwheeming IPO proceeds from other companies (especially Eco World International which received 9 times oversubscription).
There was 21 million retail shares (approx. 4.6% of total number of IPO shares) unsubscribed at the end of the closing date. It was quite shocking to me given that RM8.00 was quite reasonable vs its peer, PChem (maybe I am too optismistic, haha). Most of the research reports set LCT's TP at only RM8.08 (wow, 1% growing space...). I believe overall the investors may preceived RM8.00 was too pricey for LCT. As a result, LCT decided to fix its IPO price at RM6.50 and offer share buy back option (fixed at final retail price, RM6.50) which is up to 59,200,900 IPO shares subscribed by the affected investors should they wish to exit their investment in LCT (not those ordinary shares traded in the open market after launch). So with RM6.50 relaunched IPO price and share buy back option but undersubscribed IPO share, do they good or bad for the applicants?
In humble my opinion, this is a really good bargain that we can't find often. These are the reasons
1. IPO price at RM 6.50
The initial IPO price at RM8.00 was putting LCT at P/E 15x, although it is still consider lower compare to its peers. The new IPO price RM6.50 would put LCT at P/E 11.40, which is to me, way below compare to its peers. There will be bigger room to grow.
LCT has 50% dividend policy, which expect to deliver 25 to 30 cents DPS per year. DY was only 3-4% at RM8.00. Investors have to aim at faster capital growth rate since the DY was almost comparable to fixed deposite. But the DY will be 4%-5% at RM6.50. Now the DY become acceptable and "holdable" for long term even capital growth rate were so so, less pressure on the investors' capital in LCT.
2. Share Buy Back Option
You may refer the buy back option, T&C in the link below
http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=80540&name=EA_GA_ATTACHMENTS
Request form for buy back can be downloaded in the link below
http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=80541&name=EA_GA_ATTACHMENTS
It provides a safety net for the applicants IF the stock price tumbles during the 1st day of trading (touchwood), which is very unlikely to happen given the fact that RM6.50 is consider slightly undervalue compare to PChem. How often can you buy a share with the condition: gurantee 100% fund return if you are not happy at the price that you purchased within 5 days?!!
3. Undersubscribed
- 100% success rate for the current applicants, you shall get what you applied. Simple as that. When the cake is big enough for all the guests, no one will go home with empty/half empty stomach.
- With lower subscription rate, there will be less opportunist to flip the share price during the 1st day of launch. Also because of the price of RM6.50, it is less attrative for them to flip (maybe this is also one of the reason contributed to below expectation subscription rate)
- Like what Harry Teo said: be careful at the crowded place (人多的地方要小心). Please like his FB page if you haven't done so. You shall get a lot of useful information in the FB page. Eco World International had 9x times oversubscription rate, the share price was flipped from RM1.20 to RM1.36 during the 1st day of trading then gradually sank to RM1.0+ over few weeks, now EWINT was floating at around RM1.10. Safer with less crowd (or opportunist).
https://www.facebook.com/groups/sharixinvestment/
Conclusion: Congratulation to the current LCT IPO applicants. It may hard to foresee how LCT will perform in the near future, but at least, you have a good start.
*Disclaimer: The information above is only for sharing purpose, it does not contain buy or sell call. Trade at your own risk.
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Discussions
1 person likes this. Showing 50 of 89 comments
It is still hard to tell how well LCT will do. crude oil price has a big influence on its margin. Its business was not really good in the pass few years due to the high crude oil price at around 80-100 usd per barrel. Its earning started to soar in 2015 and 2016 after crude oil price drop significantly. The only concern i had for LCT is RAPID project in Johor. Once the project completed (expected by 2021 if i recall correctly), definitely will have an impact on LCT business since petronas sapu all from upstream to downstream include export direct from RAPID.
2017-07-05 23:46
I like lotte cos I can't see oil hit USD 60 by the end of this year.should avoid oil stocks for the time being.
2017-07-05 23:48
I wrote a blog not long ago before the new IPO announcement to analyse LCT.
https://klse.i3investor.com/blogs/ifrit2020/125655.jsp
Maybe I was too optimistic to hope that it may climb to RM9.00. Haha. With new IPO at RM6.50, I felt more secure to hold for at least 2-3 years. Of course when it were overvalue at certain period of time, I may choose to sell it too.
2017-07-05 23:54
if oil down to USD40 I am sure lotte profit can hit the 2 bil mark.anyway see the opening,if below 6.50 I sell for the buy back and buy at the market. if above 6.60-7.50 I hold, if 8 I sell.any how it's a win win situation.....hahaha
2017-07-06 00:01
I've told u super many times don't play-play with anything related to O&G mah.
This JiauJiau monkey then starts to realize and made a reverse gear on his prediction on the IPO TP? LotteChem is UNDER-SUBSCRIBED mah. You don't know how to interpret the Qatar-Middle east crisis meh. After all I made so much money in oil markets many years already even during peak $156 lah.
That is why I said your FA is not good loh. Already so bad FA and u want to teach people? Shame shame lah.
2017-07-06 08:28
retailers money should be apply IPO but lost all to moneygames now no money to apply, even advancecon which is only 63cts,only 10 times oversubscribe. lotte ipo 8.00 how do u expect retaiers to have the money to buy?
2017-07-06 08:58
Wrong thoughts lah you. It is the PESSIMISM of the public towards LotteChem and O&G sector at the moment since the Qatar-Middle east crisis is deepening
2017-07-06 09:15
Dear all, pls dont reply CKCS. He is just a childish loser wants to intimidate me as he felt I'm a threat to him in Evergreen forum because I am one of the members could counter his twisted facts. He is following us and insulting us by purpose. He got excited when others argue with him. Thx
2017-07-06 09:50
Apollo, good strategy. Haha. The price may not fructuate much. I guess should be within 6.50-7.00 range during the launching day. Since all IPO subscribers had buy back option with guaranteed 6.50, i doubt any one of us will sell below 6.51-6.52, unless those institutions throw below 6.50 for whatever reason.
2017-07-06 09:59
The absolutely correct action is toWALK AWAY, AND TO TRY SOMEWHERE ELSE ANOTHER DAY. Good luck ALL.
2017-07-06 11:39
on the listing day...you will know either they or you actually an idiot....
2017-07-06 14:39
i just ask opinion from 5 remisiers from different securities firm,their views and their securities analysts views, all five of them told me sure can make profit upon opening.TP from appoloresearch TP 6.65-7.00
2017-07-06 15:28
In my opinion, at 6.50 u are likely to make a small profit. As most of the shares ended up with institutional investors. The stabilization manager will ensure that it won't go below 6.50. Best of luck.
2017-07-06 16:04
if go below 6.50 I buy then sell stocks to the buy back and make lo....hahaha
2017-07-06 16:07
EVENING 5: Lotte cuts IPO price to RM6.50
https://www.youtube.com/watch?v=PERdXiLW0RQ
Very bad following on Lotte. IPO price is slashed! Use ur head
2017-07-07 07:33
Maybank: Lotte Chemical Titan 'may be subject to stabilising action'
http://www.theedgemarkets.com/article/maybank-lotte-chemical-titan-may-be-subject-stabilising-action
Sure bad opening on the listing day........let's bet!
2017-07-07 15:45
CKCS is a doomsday preacher, keep posting negative comments. What is his motive? Can't stand to see ppl makes money?
2017-07-07 17:59
6.00 I buy and sell for them at 6.50....cos I got from ipo, anyhow sure win.....hahaha
2017-07-07 18:13
I use my mind.....ummmm.....under subscribe price is 8.00, if 6.50 and still open sure many will buy
2017-07-07 18:15
why bad? many blue chips now new high, only lousy penny stocks are down cos retailers now mostly broke being conned by moneygames
2017-07-07 18:18
If penny lousy why list so many stocks? Must change to Pakatan and Mahathir return as PM. During his time govn suffer forex loss but we untung from penny stocks gain. Idris RM 7, Hwa Twai RM 200, if under NajXX forever cannot.
Posted by Apollo Ang > Jul 7, 2017 06:18 PM | Report Abuse
why bad? many blue chips now new high, only lousy penny stocks are down cos retailers now mostly broke being conned by moneygames
2017-07-07 18:31
Next week launching. Regardless what is the closing price. This stock can hold for at least 1-2 years. I believe 8.50-9.00 is possible in 1-2 years time. At the mean timr, enjoy its 24-30 DPS per year.
2017-07-07 23:19
Read this subject matter....it tells u already it may be subject to stabilizing actions by Maybank meaning u can expect its share price on debut to FALL further loh. Why salesman still tried to sell u their weak advice to buy? LMAO
http://www.theedgemarkets.com/article/maybank-lotte-chemical-titan-may-be-subject-stabilising-action
2017-07-10 10:17
advcon also delay ipo also so good today,almost 30% premium,macam limit up lo
2017-07-10 10:25
....lowest vvaluation is 7.30....so what is the problem ???????if the valuation is 1.00 then got probelem.......the actual problem is you.....
2017-07-10 10:30
reduce price so can up to make everyone happy to vote for BN....brim is for the poor,lotte is for the middle class.....next edra is for the rich.....hehehe
2017-07-10 10:30
http://www.thestar.com.my/business/business-news/2017/07/08/all-eyes-on-how-lotte-chemical-will-perform-after-relisting/
Demand not good for Lotte shares. That is why offered price reduced.
2017-07-10 10:40
advcon also demand not good but opening so good....now fund managers are selling others and tomoro going to buy LOTTE, just like me sold advcon to buy LOTTE tomoro
2017-07-10 11:08
hope for the best tomorrow..but if i lotte ceo, i will shoot high so that i can say..padan muka korang sapa tak beli..haha...j/k
2017-07-10 12:42
I told u 2 Big warnings signs from the beginning mah. It's "Undersubscribed" and "IPO price revision". If you cannot even understand both of these bad signs for an IPO then u better go to casino with better luck.
Why are these salesman keep defending? No point loh. ChngJiauJiau can retire and stop dreaming to be FA sifu.
2017-07-11 07:37
yeah, talk bravely when share price is down. let's see how LCT does in long term.
How bad can we get with buy back option? We can always enter at lower price and let its result do the talking.
2017-07-11 11:06
ChongJiauJau, I told u long before IPO listing day. U don't remember? Why memory so short?
2017-07-12 07:31
Oh look what happen on listing day? This will just be like other MEGA IPO stocks DESCENDING DOWN for a long period of time.
2017-07-12 07:32
When Maybank acting as a stabilizing agent's role is done or expires, what will happen to it? IPO listing also need so much hard work from Maybank, how good do u think it will perform without stabilizing agent like Maybank?
2017-07-12 17:10
Where is ChongJiauJau? Wow very good FA he has. More of a FarkedAnalysis (FA) LMAO
2017-07-12 17:10
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Apollo Ang
why u think that? I tot u like profit making companies?
2017-07-05 23:46