A Change of Guard

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Thursday, 21 April 2016

Fourth IPO kicks off roadshow


Phnom Penh Special Economic Zone CEO Hiroshi Uematsu speaks at Raffles Hotel Le Royal yesterday morning during the company’s IPO launch presentation.
Phnom Penh Special Economic Zone CEO Hiroshi Uematsu speaks at Raffles Hotel Le Royal yesterday morning during the company’s IPO launch presentation. Heng Chivoan

Fourth IPO kicks off roadshow
Thu, 21 April 2016
Cam McGrath


Phnom Penh SEZ Plc, which operates the country’s busiest industrial park, launched its IPO public roadshow yesterday, pitching its solid track record and growth potential to prospective investors that it hopes will sink up to $11.6 million into the company’s initial public offering on the Cambodian stock market.

The private company intends to float roughly 11.6 million shares, about 20 per cent of its enlarged issued share, on the Cambodian Securities Exchange (CSX) when it lists, tentatively scheduled for June 13.

Hiroshi Uematsu, CEO of Phnom Penh SEZ, described the launch of the IPO as a “milestone” in the company’s 10-year history. Its 357-hectare special economic zone (SEZ) on the outskirts of the Cambodian capital has pulled in about $460 million in investment, boasting nearly 80 industrial firms that employ over 16,000 workers.

“Our growth has been remarkable . . . and today we are the leading SEZ in the country,” Uematsu said. “Year after year, our business model has proven itself.”


A five-day bookbuild currently underway will shape the IPO issue price, with the indicative price band ranging from $0.70 to $1 per new share. With this, Phnom Penh SEZ aims to raise between $8.1 million and $11.6 million in what will be the country’s fourth IPO to date.

Subscription will be held on May 17-20, with the results announced on May 26.

According to a disclosure document released yesterday, the bookbuild and subscription results will be used to determine the share allocation.

A minimum of 37 per cent of the new shares will be allocated to “cornerstone” investors, with at least 24.5 per cent going to institutional investors participating in the bookbuild. From 10.5 per cent to 15.9 per cent of the new shares will be reserved for retail investors, with a flat 10 per cent set aside for Phnom Penh SEZ’s employee stock ownership program (ESOP) – a generous allotment for a company with only 66 employees.

Phnom Penh SEZ will use the proceeds of the IPO to develop a new special economic zone on 53 hectares near the Thai border in Poipet. The company has already purchased the land and plans to sink $8.5 million into developing its infrastructure.

It will also use a portion of the funds to purchase additional land around its industrial park in the capital, to repay some of its bank loans, as working capital and to defray listing the share offerings’ fees and expenses.

The disclosure document, which provided limited financial data and no growth forecasts, highlighted Phnom Penh SEZ’s double-digit growth of revenue and earnings in recent years.

The company generated $23.4 million in revenue and $5.9 million in net profit in 2014, the latest full year on record and the first to incorporate the financial results of the company’s subsidiaries. Revenue was derived primarily through the sale of land, with a smaller portion coming through the company’s service charges and rental fees of the industrial park’s tenants.

To sustain growth, the company will need to periodically expand its land bank, while revenue will weigh heavily on its success in selling industrial plots in its Phnom Penh and Poipet industrial parks. The sale results will reflect on its stock price, noted Fong Nee Wai, the company’s chief financial officer.

“With Phnom Penh SEZ essentially being a property company, the value of the stock will also rise on the back of the future value of the land,” he said.

Nee Wai said the company had a solid performance record and top-notch management team, and has tapped into the growing foreign demand for serviced industrial space. It also expects to hook investors with an attractive dividend policy.

“We target a dividend payout ratio of no less than 20 per cent of our profit,” he said, adding that the first dividend would be distributed by the end of the year after listing.

Eiichiro So, chairman of SBI Royal Securities, one of the stock’s managing underwriters, said the pricing of the company’s shares should appeal to investors, with the indicative price-earnings (P/E) ratio ranging from 6.89x to 9.85x.

“Phnom Penh SEZ has a mind to create liquidity in the market, so compared to previous IPOs, the P/E ratio is much lower,” he explained, adding that the company’s valuation – compared with similar industrial park operators in Thailand and Vietnam – was “very reasonable”.

An equities analyst, who did not wish to be named, said the lower valuation was needed to make the stock more attractive to wary foreign investors.

“A P/E of 10 is about right,” he said. “It should be a relatively high growth security, which might suggest a P/E of 12x to 15x, but you have to build in the ‘Cambodia country risk’ discount.”

The success of Phnom Penh SEZ’s IPO will depend largely on the support of foreign institutional investors, though representatives of the company and its underwriters made no public mention of their success in securing investment.

However, Vicheth Vannarath, CEO of Cana Securities, one of the stock’s underwriters, told the Post that more than 60 per cent of the allotment for cornerstone investors had already been covered.

All told, the capital-raising exercise will need to cover the IPO’s estimated $1.3 million listing fees and expenses – a sizable chunk of the expected $8.1-$11.6 million proceeds.

Nee Wai said the actual issue costs were unlikely to surpass $1 million, but even this was “quite high” when compared to the size of the issue. He chalked it up to the challenge of working in a small, undeveloped capital market with just three listed companies and low liquidity.

“Initially, we thought we could raise $18 million,” he said, “but that was before the US [Federal Reserve] raised interest rates and the whole capital market crashed last September, in addition to the Thailand temple bombing.”

He said even with its challenges, raising capital on the stock market would prove less encumbering than relying on bank finance.

“In the long run it’s still good for the IPO because the cost of equity will eventually go down, and the cost of equity is only based on dividend payments, while the cost of bank borrowing is a committed cost,” he said.

“And like it or not, you have to pay interest to the bank whether or not you make profit.”

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