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An IPO with a value approach

Fong Nee Wai, the chief financial officer of Phnom Penh Special Economic Zone, talks to the Post from his office in September.
Fong Nee Wai, the chief financial officer of Phnom Penh Special Economic Zone, talks to the Post from his office in September. Kali Kotoski

An IPO with a value approach

Phnom Penh SEZ Plc, which operates a 357-hectare industrial park on the outskirts of the capital, held a bookbuild last month to determine the share price for its upcoming initial public offering on the Cambodian stock market. The private company aims to raise between $8.1 million and $11.6 million to cover foremost the development of a new industrial park near Poipet on the Thai border.

The Post’s Cam McGrath spoke to Fong Nee Wai, chief financial officer of Phnom Penh SEZ, about the response of investors to the share offering, prospective tenants, and the company’s earnings and projections.

Why should investors buy into this offering?

Our share price is competitively priced for a longer-term investment strategy when compared to the other three stocks, whose issue price was relatively higher. This obviously makes our share price stand out as a value-buy investment stock to consider, allowing most of the general public to invest and trade on the stock exchange, creating transaction volume. This is essential for a newly created capital market such as Cambodia’s.

What was the response to the bookbuilding, and how were investors pricing their bids?

Our shares allocated under the bookbuilding process were all fully subscribed. We had a small number of shares that were actually overflow from the potential investors’ stage to the bookbuilding, which made our bookbuilding complete.

We were anticipating the share price to be in the price range from $0.70 to not more than $1 per share. We had some potential investors bidding at $0.80 to $0.90 per share, but the majority of them were bidding at around $0.70 and above.

What were the company’s revenue and earnings in 2015?

Actual performance did not turn out as projected in 2015, hence our earnings and revenue growth rate both declined as compare to projections prepared a year ago.

Our overall performance was down, and to a certain extent was affected by the world economic slowdown in the last quarter of the year – this was something really beyond our expectations.

Especially in early 2015, the Japanese Yen currency suffered a sharp fall of approximately 30 per cent devaluation. This made many investors and manufacturers from Japan, and Japanese firms based in Thailand, hold back on their decisions, and this was the main cause of our decreased sales in 2015.

We are likely to close the year with total sales revenue of $16 million, compared to $21 million in 2014, and profit after tax of $3.2 million, compared to $5.8 million in 2014. What is important to note, however, is that we are still generating profit and we will continue to improve our performance this year compared to last, as we feel strongly that the economic climate has improved over the last three months, with most countries and currencies stabilised or improving.

What are your revenue and profit forecasts, and why were they not included in the disclosure document?

Our profit projections, prepared at the end of 2014 and submitted to the SECC way back in June 2015, were for $9.3 million in 2016 and $9.7 million in 2017. However, at the end of 2015 we reckoned that the world economic climate had changed dramatically and the management acknowledged the fact that the projections for 2016 and 2017 that we submitted to the SECC would not be attainable.

We have already proposed the need to revise our projections after we complete the listing process and to keep all our potential, existing and new shareholders notified. The projections for our profits to be generated will likely be: $3.2 million for 2015, $4 million for 2016 and $4.6 million for 2017. The bottom line is we will still be able to generate operating profit after tax.

Your company’s revenues are heavily dependent on land sales, yet no new tenants have been announced since last year. Do you have any prospective tenants lined up for your industrial park in Phnom Penh?

We had three major investors come in last year and we should have another three or four coming in this year. A few potential clients are following our existing tenants in Phase 2(II) of the project. Some of their downstream suppliers are considering commencing operations within our zone so that they can operate within the same vicinity and take advantage of the supply chain and logistics costs.

In addition, the location of Phase 3, which is just next to the railway link and road, allows Phnom Penh SEZ to have warehouses, logistic-hubs and/or container yards. This will make this phase very competitive for tenants who consider these features in order to meet their operational needs.

We also still have some ideal locations that could be offered to potential clients in Phase 1.

And how about in Poipet?

We have already logged some potential investors who are considering setting up production plants in our Poipet SEZ. They are mainly key international players in the automotive industry. These are operators that could set up a Cambodian factory as a support hub for Thailand – where their existing production facilities will remain – but they could shift some of their operations that are more labour-intensive to Cambodia so as to lower labour costs and benefit from our better tax incentives.

More than half of Phnom Penh SEZ’s investors are Japanese companies. Going forward, how important is it to diversify your tenant mix?

There is nothing wrong with keeping this pattern for our existing zone, however we do realise that we should have a balanced mix in our new development phase to avoid overly relying on either one particular nationality or industry, so as to diversify our risk.
This was made evident in 2015 when the Japanese Yen currency suffered a huge devaluation. Most of our sales were affected, and decisions to invest in our zone at that time were either put on hold or cancelled.

We have now devised a plan to attract zone investors from Thailand, which is our new focus this year, as well as from European countries and the US and Australia. With such a plan in mind, we believe that we will be able to shift our business and diversify our risk by not merely relying on just one sector of business.

This interview has been edited for length and clarity


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