Published August 8, 2009

Year's first mainboard listing creates a splash

PEC nine times subscribed, closes 80% up

By CHEW XIANG

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THE first mainboard listing of the year jumped as much as 89 per cent on its debut, stoking fears of speculative fever even as one veteran analyst said local stocks are now fairly priced and no longer cheap.

There have been six previous listings on the smaller Catalist board but only one - Singapore Medical Group, which listed last month - is trading a significant distance above its launch price. That's even though the broad market has jumped 80 per cent from its March lows.

But mainboard listings can attract interest from big institutions who may be barred by their mandates from investing in the smaller stocks that populate the second board, one industry watcher said.

The invitation for PEC Ltd - which launched its mainboard listing earlier this week at 40 cents a share and started trading yesterday - was nine times subscribed, the company said earlier. PEC, which provides engineering, procurement and construction services to the oil, petrochemicals and pharmaceutical industries, raised about $25 million to fund expansion overseas, particularly in the Middle East.

PEC traded as high as 75.5 cents a few minutes after the market opened yesterday morning. It eventually closed the day up 80 per cent at 72 cents, on volume of over 81 million units - among the top three for the day and more than its entire placement of 63 million units.

Goh Han Peng of Kelive Research said the stock was fairly valued at between 80 and 90 cents a share. In a client note he noted that the offer price of 40 cents a share values it at 3.5 times historical earnings, and four times estimated 2009 earnings. 'In comparison, Rotary Engineering trades at 14.7x FY09 and 9.5x FY10. We think on debut, PEC's price action will likely be strong with the grey market factoring in a $0.10 premium over IPO price,' Mr Goh said. 'We recommend buying the stock up to $0.65, and peg fair value at $0.80-0.90 based on 8x current year price earnings, a 40 discount to Rotary's price earnings.'

Lim Jit Soon, Nomura's head of equity research for Singapore and South-east Asia, said in a report yesterday that the Singapore market was now looking fairly valued. 'The deep undervaluation in the market in March has been taken out and we are now at fair value relative to current fundamentals,' Mr Lim noted.

'The market's price to book is now at its long-term mean of 1.7x while its 12-month rolling price-earnings is at 17x, just ahead of the long-term average of 15x.' He noted that investor sentiment has been moving since July to small caps and 'laggards' such as media and telcos.

Another public offering on the Catalist board due to start trading on Tuesday should give a better idea of the extent of any speculative froth. Mary Chia Holdings, a 'wellness' provider, launched its initial public offering (IPO) this week to raise $5.65 million. The placement of 24.6 million shares at 23 cents apiece was fully taken up, the company said yesterday. Executive chairman Mary Chia said she was 'pleased with the response to the IPO despite the current uncertain economic environment.'

Mary Chia will be only the eighth company to list in Singapore this year. JPMorgan said last month it expected up to 10 new offerings here of up to US$200 million each by the end of the year. But Nomura's Mr Lim cautioned that stocks may have recovered 'too fast and too early'.

'Singapore's exports and industrial production remain weak, while unemployment will likely worsen if the economy does not improve, given the level of under-employment embedded within the workforce,' he said. 'We do not think the market has become too expensive, but the deep under-valuation has corrected itself. From here on, we think we will see normal returns with stock-picking becoming increasingly important.'