On course to become the third listed company on Cambodia’s stock exchange, Phnom Penh Autonomous Port (PPAP) kicked off a road show for its initial public offering (IPO) yesterday to prospective investors.
PPAP, the state enterprise that operates Cambodia’s second-largest port, is seeking to raise up to $6.4 million for expansion by offering a 20 per cent stake to investors ahead of its planned December listing on the local stock exchange. Some 4.1 million shares are being offered at a price range of 4,405 riel to 6,320 riel (approximately $1.08 to $1.55), with the share price to be announced following a four-day book-build session.
Turnout for the first day of the IPO road show and bookbuilding yesterday – which saw uniformed port employees outnumber dark-suited prospective investors – belied the high level of institutional interest in the stock.
Yuanta Securities (Cambodia), the sole underwriter, book-runner and lead manager of the IPO, claims to have secured enough demand from its clients to cover at least 70 per cent of the offering. And much of this interest is from strategic investors, who paid upfront for a stake even before knowing the share price.
“So far, 80 per cent of this offering has already been booked,” said Han Kyung Tae, Yuanta’s managing director. “We’ve secured about 70 per cent of the offering just from our clients, while another 10 per cent was allocated for PPAP’s employee stock ownership plan.”
“We’re expecting much more investment so we’re very confident this IPO will be successful,” he added.
The Cambodia Securities Exchange (CSX) has struggled to ignite investor interest since launching in 2011 and has just two listed companies, state utility provider Phnom Penh Water Supply Authority (PPWSA) and Taiwanese garments manufacturer Grand Twins International.
Kyung Tae said compared to earlier IPOs on the CSX, PPAP’s offering has drawn a higher proportion of foreign investors – with accounts from South Korea, Japan and Thailand snapping up a sizeable chunk of the allotted shares. It has also attracted local investment firms, including some that opted out of earlier listings.
One reason for this interest is a more rational valuation backed by solid fundamentals. Both PPWSA and Grand Twins currently trade at well below their offer prices – a sign that their IPOs may have been overvalued.
Stephen Higgins, managing partner of Mekong Strategic Partners, a Cambodia-based investment firm that is looking to secure a stake in PPAP, said the port’s land holdings have the potential to generate significantly higher returns than currently seen. While its valuation on a P/E basis is likely to be broadly in line with earlier floats, on a price-to-book value basis he estimates the share offering to be a better value.
“Combined with its expansion plans and quality of management, we believe this is the best of the IPOs that we have seen so far, or are likely to see in the near term,” he said.
To sweeten the deal, PPAP has offered private investors a guaranteed 5 per cent dividend yield on the initial share price for the next five years.
Hei Bavy, CEO of PPAP, said that the dividend would be paid in cash or shares according to the company’s investment needs.
“If PPAP needs cash for investment then we would use the dividend and shares would be provided instead,” he said.
Noeurm Yenda, an associate at Yuanta, said the guaranteed dividend was aimed at increasing investor confidence to ensure the IPO’s success.
“The dividend is a price support mechanism for the stock, and could offset any capital loss,” he said. “But [PPAP’s value] is not just about a guaranteed 5 per cent dividend, it’s also about the potential for capital gain.”
Cheng Paul, a potential first-time investor attending yesterday’s road show, said he was impressed with PPAP’s revenue potential and expansion plans, but unmoved by the guaranteed dividend.
“It’s the same rate as what I’d get if I put my money in the bank,” he said. “It’s not that attractive, as I’m looking for more in a stock.”