Credit Bureau Asia Limited IPO . To Apply or Not?

Some Basic Info(Apologies if they are not as accurate)

Listing Date: 3 December 2020

Offer Price: 0.93 SGD (93 cents)

Enlarged Share Capital: 230,390,000 Shares

Implied Market Cap : $214,262,700

Offer Size: Around 58 million Shares

Public Offer : 1,500,000 Shares

Dividends: At least 90% of net profit after tax for FY 2021 and FY 2022

Prospectus can be found here

Financial Info

Historic PE: 30.6

Half Year Implied PE: 28.9

Company Info

A company that speciliazes in credit reports. Providing to financial institutions and non financial institutions. Some of its customers include local banks as well as Singapore Commercial Credit Bureau.

These credit reports are needed for loan approvals as well as assessing an individual/ entity for their ability to undertake a loan.

The company has Singapore, Malaysia , Cambodia and Myanmar exposure. However, it has disposed off its Malaysia Unit as it was loss-making.

Perhaps unsurprising as well, Singapore contributes the most revenue and profit to the company. This is due to its market leadership in Singapore and Singapore being the most developed market among the 2.

What I Like about this Company

1) Relatively Resilient Line of Business

-Rain or Shine, loans will be needed and there will be a need to assess if loans are needed. As such there will always be a good demand for credit reports and related services. This can be seen in its Half Year Revenue which was largely stable despite Covid 19 and circuit breaker.

2) Dominant Market Leader in FI Data Business

-Company has 99.9% of market share in the FI Data Business. Being the market leader, it is likely that the revenue stream will be stable as the rival in this case is too far behind.

The company has also won the tender of operating the Moneylenders Credit Bureau from Ministry of Law. This will allow the company to further expand its reach in the FI Data Business as the current bureau is operated by its rival Experian. The tender victory would allow for a higher information sharing as more members are added.

3) Exposure to Myanmar and Cambodia 

-Both are developing countries, with economy picking up in the future, the need for such credit reports would likely increase as well. This would bode well for Credit Bureau Asia as it is able to take advantage of the rise in affluence. On top of that Cambodia has been profitable since 2017

4) Organic Growth Seen

From 35.6 million in 2017 to 40.6 million in 2019. Its a decent 14% growth across 2 years. Despite Singapore being a relatively developed market already. As such, in a normal year, attaching a growth of 5-7% seems to be fair.

To add on, it has only about 43% market share of the Non FI Data Business(54 million estimated in 2019), which means should it gain market share and maintain margins, the growth can be higher than 7%

What I Dislike about the company

1) Structure of the company

-With 51% ownerships and joint venture structures, it has resulted in the company's non controlling interest earning bulk of the company's profits.

A deeper dig will reveal its other owners sharing the profits are large data companies like Dun & Bradstreet(2017 Revenue 1.74 billion USD) as well as Equifax (2019 Revenue 3.5 billion USD)

As such, one would wonder if these big companies decide to work with someone else, where would Credit Bureau Asia be? Since Credit Bureau Asia is unlikely to be a big fry to these companies.

2) The need for listing

-Looking at the balance sheet, the company does not seem to have a purpose for listing. It does not seem to have any financial difficulties. It has also not used any debt so far.

-It even paid out at least 10m each year. Which does not seem to indicate that they have any plans for a big expansion or acquiring a big rival or upwards/downwards intergration. Since if they would it is likely they would store cash instead

3) Malaysia Losses

-Malaysia has been unprofitable in 2017, 2018 and 2019. Although the company cited reason was competition from multiple players in the credit and risk information solutions industry in Malaysia, it is a good reminder that the company is not always successful to breaking into another country and the Non FI Data Business is still competitive even in Singapore as well.

Conclusion

-I feel that its worth applying, though its not for a long term hold. Probably just flipping on hype and craze as well as the markets recovering well in recent times.

-The small public offer will make placement shares look attractive and some folks might want to get into the market as it offers a dividend yield(around 3% likely) that is resilient

-In terms of long term prospects, i don't expect high growth of 30-40% in revenue year on year. However I think 5 to 10% each year will likely be possible. The growth will have to come from Cambodia and Myanmar in due course if things go the right way.

-As it is one of a kind IPO in SGX, there is no comparative PE to attach to. It would be unwise to compare it to the companies it is partnering as those companies have the scale and know-how.

-If i have to force fit a comparison, probably Vicom would be a company i would compare to due to its defensive nature. Hence a PE of about 20 would be ideal.