Japfa draws strong retail uptake in Singapore IPO

Retail investors showed a healthy appetite for the Indonesian meat processor and dairy operator in what's been a mixed few weeks in Singapore's IPO markets.
Japfa is Indonesia's leading premium milk producer
Japfa is Indonesia's leading premium milk producer

Japfa, the Indonesian meat processor and dairy farm operator, attracted solid demand from retail investors during its Singapore initial public offering on Thursday.

Despite being offered just 6.8% of the deal, retail investors placed orders for almost 10 times as many shares — applications totalled 163.5 million shares, according to a source close to the deal, for the 16.8 million shares included in the retail tranche.

It was clear from the start of pre-marketing that investors were keen on Japfa, which is Indonesia’s second-biggest agricultural company after Charoen Pokphand Indonesia. Books were covered several hours after the bookbuild started on July 29, with the final book a mix of institutions and wealthy individuals.

“The deal had very good momentum,” Cheah Le Sa, managing director of capital markets at DBS, told FinanceAsia. “Books were covered on the first day of the launch, with demand [from] a mix of long-only, multi strategy and high-net-worth individuals across Asia and Europe.”

The entire book consisted of 248 million shares sold at S$0.80 each, near the middle of the initial S$0.75 to S$0.87 range, with the company raising S$198 million ($158 million) under the leads of Credit Suisse and DBS.

The institutional book was oversubscribed by 5.1 times, with both the institutional and retail tranches accounting for 14.4% of the Japfa’s enlarged share capital. An overallotment option, if exercised, would take on an additional 37.2 million shares.

Momentum for Japfa’s IPO even outpaced Germany’s I-Reit Global Management, with its retail book subscribed 7.6 times. Last week, I-Reit, which owns a portfolio of German office buildings, completed the first leg of its reconfigured S$369 million IPO by allocating fewer shares to institutional investors than originally planned to accommodate an investment by local tycoon Lim Chap Huat.

Under the new structure, I-Reit’s placement tranche comprised 156.49 million shares at S$0.88 per unit. Institutions were allocated S$67.57 million, or 76.79 million units, while Lim got 79.7 million shares.

I-Reit is the first European real estate investment trust to list in Singapore.

Where are the comps trading?
At S$0.80 per unit, Japfa is now trading at 9.3 times its 2015 earnings, a reasonable discount to its peers.

Japfa is vertically integrated and focuses on the whole protein food value chain — and, as such, it does not have any direct comps. However, certain parts of the company’s business can be compared to a number of large Chinese dairy players, including China Modern Dairy and China Huishan Dairy, both of which are trading at higher valuations. China Modern is trading at 15 times its 2014 earnings and is down 22% this year, while China Huishan Dairy is trading at 12 times 2014 earnings and is down 38%.

China Shengmu Organic Milk was also mentioned as a peer, although Shengmu, which relied on friends and family to complete its $137 million IPO earlier this month, is more niche, as it focuses on the organic milk market.

Mixed bag in Lion City
Despite Japfa’s successful floatation, it’s been a mixed week in the Lion City after Samdura Energy postponed its listing on August 6.

The Indonesian junior exploration and production company sought to raise between S$248 million to S$276.3 million last week, but the company’s last few days of roadshows coincided with a global deterioration in investor sentiment. The order book never picked up momentum as a result, and closed only 1.3 times covered at the bottom of the range.

“Investors continue to be discerning,” Cheah told FinanceAsia. “Going by investors’ interest shown during the bookbuilding exercise, Japfa clearly had their vote of confidence while the broader market continues to be cautious.”

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