Saturday, November 12, 2011

Why Buying IPO Stocks is Dangerous

I'm of the opinion that buying ipo stock is dangerous. Mindset of companies is to raise as much $ selling shares & thus it is of their self-interest to paint a rosier picture to suck investors in. Is like a lady putting on lipstick, thick makeup & a pushup bra to make appearance better than it is to lure people's eyes.

Market is always there. There is no need to get excited about IPO stocks.

What caught my attention is the warning about shrinking in non-resident population. This factor applies to other businesses in S'pore. Govt is just force feeding population figures to keep the gdp churning without much regard to social & quality of life costs. Instead of encouraging more automation & moving up the tech ladder, the current govt likes to import many foreigners. After all the govt likes foreigners to consume, consume, consume to drive the demand. How much can automated consume compared to cheaper workers who need to consume food, consume services in red-light districts, consume bus & train services?

When the non-citizens start leaving the country, you can bet on a fire sale when prices come crashing down.

Sheng Siong Q3 net profit drops 50.9%
After a blazing debut on the SGX on August 17, Singapore supermarket operator Sheng Siong has disappointed somewhat with its first quarterly results.

Sheng Siong registered a net profit of S$6.6 million, down 50.9 per cent year-on-year. Revenue fell 9.3% to S$146.2 million.

The supermarket chain said the decline in profit was primarily due to an absence of investment gains for the period after it closed 2 outlets at Ten Mile Junction last November and Tanjong Katong two months ago.

Both outlets were closed as the buildings they occupied were sold for re-development.

While it will be actively looking for suitable shop spaces to open new stores, particularly in population centres where it does not have a presence, it said revenue growth in the industry may be affected if there is shrinkage in the non-resident population as a result of any slowdown in economic activities.

Sheng Siong share price jumped 70% over its IPO launch price of 33 cents to peak at 56 cents with investors confident of its business model.

Its IPO was oversubscribed by approximately 1.3 times.

The group opened two new but smaller outlets at Elias Mall in January this year and Teck Whye in May.

It is scheduled to open another 2 outlets in Woodlands Industrial Park and Thomson Imperial Court by the end of the year.

CEO Lim Hock Chee said the completion of the Mandai Link Distribution Centre in May has given Sheng Siong the much-needed warehousing capacity to engage in more gross margin enhancing initiatives like direct sourcing and bulk purchasing of goods.

In its press release, Sheng Siong warned of growth stalling amid the economic uncertainty.

It said: "One of the drivers of revenue growth in the industry is increase in population, which may be affected if there is shrinkage in the non-resident population as a result of any slowdown in economic activities.

"The industry is expected to remain competitive. One of our competitors is reported to be opening 10 more outlets before the end of 2011."


Again let's look at CapitaMalls Asia which i have mentioned in my previous blog posts which ipo at $2.12 . Same story as in investors got suckered in with the nice 'story' sold to them. What happened after the initial hype & euphoria can easily be seen from the chart:

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