Aspen (Group) Holdings Limited

Saturday, 22 July 2017

Aspen (Group) Holdings
Limited
Aspen (Group) Holdings Limited ("Aspen" or the "Company") is offering 173.27m shares at $0.23 each for a
listing on Catalist, of which 4.348m is for public and 168.922m shares via placement. The offer will close on
26 July 2017 at 12pm and starts trading on 28 July at 9am. The market cap based on the IPO price is
S$199.32m. You can obtain a copy of the prospectus here.

Principal Business

The Company is a Malaysia-based property development group with a focus on developing affordable
residential and mixed development properties and target middle-income mass market segment. Aspen
intends to provide "value-added" options to its units, such as furnishings and home appliances of reputable
brands at cost-efficient prices.

The flagship project of Aspen is the "Aspen Vision City", a 245-acre freehold mixed development project.
Aspen has entered into JV agreements with Ikano (Ikano is the franchisee of IKEA for the South East Asia
region and owns the franchise in Singapore) to develop some properties within the Aspen Vision City (artist
impression below on Aspen Vision City)

While you can see the Penang bridge in the picture above, do note that Aspen Vision City is not on Penang
Island itself but on the mainland in Batu Kawan. I have no clue where Batu Kawan is or its future potential.

The Company has 3 stated on-going projects launched in Penang, namely Tri Pinnacle, Vervea and Vertu
Resort. The estimated date of completion for Vervea and Vertu is 3Q 2018 and Q1 2021 for Tri Pinnacle. This
will be the time where the bulk of the profits will be recognised.

According to a Company fact sheet which i received from the IR company, most of the projects launched have
already been sold ranging from 57% to 83%. According to that same fact sheet, the aggregate confirmed
sales which have not been recognised as revenue amounted to approximately RM 1.108 billion. This will
probably be the revenue that will be coming on stream in 2018 and 2021 when the projects are completed.

Financial Highlights and Valuation

The Company has started to recognise some of the revenue using % of completion method. The earnings will
be very lumpy as the Company will be recognising revenue from ongoing projects and then launching new
projects within the Aspen Vision City.

Valuation

According to the valuation by Henry Butch, the market value of the projects is around RM 1,233.50 million.
That translate into S$392m as of today's rate. I am not sure how that was accounted for in the books.

The prospectus is frankly not easy to read, i have also no idea how to interpret "Gross Development Value"
and "Projected Development Profit". Perhaps someone in the know can enlighten me. Is the Company trying
to tell me that there are profits to be recognised in future, that is why they can sell the Company at a high
price to me today?

Use of Proceeds

The Company is raising $39.9m and intends to use the proceeds to acquire new land for future developments.

Shareholding

You can see from the above table that the Company will continue to be tightly controlled by the existing
shareholders. It is interesting to note that the CEO, Dato Murly started working at Ivory Properties when he
was 18 and he is only 30 years old now. A very young CEO indeed (not to mention his high pay as well...)!

SBK intends to subscribe for 26m shares at the IPO and the public will hold around 17% of the Company post
listing. The SBK shareholdings will then be distributed to its shareholders post the listing of the Company
according to the table below.

From the table below, you can see that shareholders of AVG and SBK paid around 2.08 cents to 4.41 cents.
New investors are coming in at 23 cents.

Peer Valuation

Looking at the peer table above, probably the closest peer are Oxley and World Class Global (which is not in
the table). You can find my write up on World Class Global here.

According to the prospectus, price to book is around 3.9x (23 cents divide by NTA of 5.89 cents). As you can
see from the table above, most of the peers are trading at below 2x book value and generating a profit.
Even World Class Global, with exposure to Penang and Australia, was launched at a price to book of around
2.28x based on its IPO price (now would be lower given the share price is below 26 cents).

If i use World Class Global as a benchmark, where its valuation is lower than Aspen, where investors
are more familiar with it and where the founders probably supported the IPO at launch, the
subsequent drop of WCG below its IPO price probably send a strong signal that investors here are not
able to appreciate such companies - not to mention one that is coming purely from Malaysia.
What I like about the Company
Focus on marketing quality properties to the masses - This is probably the right market segment to target
in Malaysia where there will always be demand for affordable quality housing.
Tie up with IKEA for mixed development - The JV with Ikano to develop the shopping mall and open an
IKEA mall within Aspen Vision City is a good move to attract traffic to the mall. Mixed development concept is
also catching on with families now preferring to stay close to amenities.
KPMG is the auditor - okay at least they are using one of the big 4 to audit their accounts but i have not
heard of Henry Butcher, the independent valuer
Some of my Concerns
Single country (mainly Penang) exposure - All the projects are located in Penang. Given the listing is in
Singapore and reporting the earnings in Singapore, investors will have demographic, economic and currency
exposure to Malaysia, especially that of Penang. Given how the MYR has depreciated against the SGD over
the last 30 years, investors will have to see if they want the currency exposure. (This is not the case where
they are taking advantage of local costs in MYR and selling the products in USD)
 Expanding to other South Ease Asia regions - The Company intends to expand into regions like Thailand,
Philippines, Vietnam and Cambodia (sounds like an Oxley in the making). While it holds potential, it is really
too early to tell if they will be able to execute their strategy of exporting "affordable quality housing" overseas.
Lumpy earnings and huge premium over its NTA - Adjusting for the estimated net proceeds and post
invitation share cap of 886,617,900 shares, the NTA of 5.89 cents is at a huge discount over the issue price of
23 cents. Investors are paying forward for the future value of the land that is currently under development.
Company is currently loss making with no stated dividend policy - Company is still loss making with no
clear sights of when it will turn in a profit or pay out a dividend. It will probably need to use all the profits
generated to continue developing Aspen Vision City.
Joint ventures is always a risk - Sorry for my pessimism, JVs is always a risk unless the partnership is
already tried and tested. While the tie up with Ikano is promising, there is always a risk that it may not work
out. Here is an article on the fight over iconic Capitol in Singapore.
My Chilli Ratings

Comparing World Class Global where i give it a zero chilli rating, it will be hard for me to give anything higher
than that for Aspen, especially when local investors here are more familiar with WCG, and that WCG
promised to pay dividends and has a better price to book valuation.

(Additional note: Hattan Land, a developer from Malacca, did a reverse take-over of VGO, placed out shares
at 28 cents as well and the current price is below its "IPO price" as well).

As such, it is a zero chilli rating for me. I will give this IPO a miss and perhaps use the $2 for a nice
bowl of Penang Laksa.

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