Wednesday, 16 August 2017


I had previously written about stabilisation purchases for HRnetGroup, which artificially supported the share price for some time post IPO. The stabilising manager constantly bought shares, which provided support for the share price. After the stabilisation purchase limit had lapsed, its share price trended lower to around $0.82 before rebounding. 

Currently, I observe a similar pattern for NetLink Trust, where the share price has been trading within a tight range of $0.80 to $0.815. This is mainly due to the stabilisation purchases made by the stabilising manager, which supports the share price. Tomorrow would be the last day of stabilising transactions, as it has been 30 days since the IPO. When the stabilising purchases ceases, I expect the share price to be under pressure.

Therefore, I have offloaded my shares at a price of $0.805, resulting in a small loss. I would be looking to accumulate shares again if the share price falls significantly.

I would admit that I had expected to make a quick profit through this IPO. It was priced at the lower end of the indicative range, I i hoped to have made a gain of a few percent. Unfortunately, it did not perform well, probably due to the large number of shares issued. Perhaps, as some fellow investors had pointed out, the comparison to Hutchinson Port Holdings Trust's first day performance was appropriate, given that both were large capitalisation stocks.

I still believe that NetLink Trust's fundamentals are robust, given its monopoly in the residential broadband segment, which contributes to approximately 60% of its revenue. Growth for this business segment would be from population growth, which we can certainly expect to materialise as the number of residential fibre broadband subscription rises. This would provide a significant portion of stable recurring income.

However, NetLink Trust is not a monopoly for the commercial broadband segment, with competitors including SingTel, StarHub and M1. The non building access point (NBAP) segment, while predicted to have the strongest growth of 86.2% annually over the next five years, is also open to competition. Thus the risk of under performing projected earnings arises. The fact that the pricing for the fibre broadband and NBAP subscription is regulated by IMDA provides some assurance to investors that earnings would not be too far off from projections.  

Given the near term pressures, I'll be watching closely and I'd be interested again if the share price gives a dividend yield in excess of 6%.

Tuesday, 27 June 2017


Two weeks ago, HRnetGroup, raised $174 million through its IPO. The 3.8 million shares in the public tranche were 68.34 times oversubscribed. On the first day of trading, the opening price of 96 cents represented a 6.7% premium over its IPO price. However, its performance has been weak since then. 

Credit Suisse was appointed as the stabilising manager, which means that it is authorised to purchase shares from the market to support its price. They are limited to purchasing a total of 11.1 million shares, or up to 30 days after the IPO. whichever is the earlier date. Since the share price dipped below 90 cents on 18 June, Credit Suisse has been purchasing a substantial amount of shares everyday, which is why the share price has not fallen below 89.5 cents. 

I have compiled the numbers for the total traded volume compared to the number of shares bought by Credit Suisse each day. 

DatePriceNumber of Shares bought by Credit SuisseTotal volume traded

The effect of these stabilising trades is quite clear, as the share price has been supported at 0.895 cents for the past few trading days.

Key aspects of the company

I have had personal experience using their recruitment service while searching for a temporary job. I'll refer to the interview written in the Straits Times with their CEO Adeline Sim, as she shared some key aspects of the company.

High Profit Margins

HRnetGroup's profit margin of 13% is high considering that they operate in an industry with low barriers to entry. Note that my experience is under the flexible hiring segment of their business, but I believe that their professional recruitment service works on a similar commission based model for each successful job matching. This is where the risk of undercutting arises, as competitors may charge lower fees to attract more clients, much like how the stockbroking industry works. 

For now, my understanding is that while HRnetGroup may not offer the most competitive fees, they are able to charge a premium because of their dominant market share, which means that they have the largest network of jobs available. However, their 20.6% market share in Singapore may be threatened by mergers among smaller recruitment agencies.

Opportunities for Growth

With their presence in North Asian growth cities, which are estimated to have a recruitment services market valued at $46.3 billion. HRnetGroup intends to use most of their IPO proceeds for expansion in North Asia, especially in Tokyo and Shanghai. In their prospectus, Frost & Sullivan estimates the revenue from the North Asian market would have a CAGR of 11.5%, compared to 12.4% for the rest of Asia and 4.0% for Singapore. 

With 57% of gross profit from Singapore, 39% from North Asia and 4% from the rest of Asia, the weighted average of the CAGR would be around 7.2%. The key risk here would be execution risk for their expansion in North Asia. 

Sales Driven Culture

This was definitely evident as the agent would call me nearly everyday, offering me a variety of jobs, which ranged from government agencies, financial institutions to even being a translator. Ms Sim mentioned that 85% of employees hold sales roles, and promotions are based on exceeding sales targets. If you are a shareholder, having employees with a strong sales driven culture is definitely a positive aspect, given that the recruitment industry is highly competitive.

Brand Reputation

One notable detail is that HRnetGroup has offices in Grade A office buildings only. As mentioned by Ms Sim, this is to give clients a positive impression and experience. When i was a candidate, visiting their office located at a Grade A building definitely gave me a good impression, so while the rental costs are higher, it is still worth it to build a reputable brand.     

My thoughts

While my observations on HRnetGroup are mainly based on anecdotal evidence, I believe that if we view owning a stock as owing part of the business, it is important to understand the employees and culture of the company. HRnetGroup is a reputable, cash flow generating business, with a proven track record. The only factor holding me back is the rich valuation.

This IPO was priced at the top end of the range, yet it was still heavily oversubscribed, probably due to the bullish market sentiments as well as the strong performance of recent IPOs such as Kimly, UnUsUaL and Sanli. Now that the price has dropped back to the IPO price, I'm sure most of those who were part of the 68 times oversubscribed public tranche would not be buying. If so, wanting to make a quick buck from cashing out on the first trading day is pure speculation rather than investing.

My view is that pricing the IPO at a high valuation was great from the company's perspective - they managed to raise the maximum amount of funds that the could get. In fact, IPO shares that skyrocket immediately after trading, such as Kimly or Sanli, reflects that the company had grossly undervalued their own shares, as they could have raised much more capital for their company. However, from the perspective of investors who got the IPO shares and did not sell on the first trading day, they do not stand to benefit much. The market probably feels that this company is fairly valued at 22 times earnings.

With Credit Suisse performing the role of the stabilising manager by purchasing shares daily, the limit of 11.1 million shares would be reached rather soon. It would be interesting to watch how the price moves once the stabilising trades have ended.

Tuesday, 30 May 2017


The media industry is undergoing structural changes, with a shift away from traditional printed media sources towards digital media. Another company here undergoing structural changes would be SingPost, which appointed Mr Paul Coutts as their new CEO. Mr Coutts has more than 20 years of experience in C-suite positions at major global logistics and postal companies.

Therefore, when SPH announced that Mr Ng Yat Chung would take over the role of CEO from Mr Alan Chan, an industry veteran, many investors wondered if Mr Ng was the right person to have the responsibility of turning around SPH's business. Most cited his poor record at Neptune Orient Lines, and lack of industry experience, given that he was previously from the military. 

I have summarised the various business segments of SPH.