Samko Timber IPO.

Closing date of application: 21 February 2008
Commencement of trading: 25 February 2008

Established in the 1978, Samko Timber is a leading Indonesian timber processing company and one of the top 5 tropical hardwood plywood producers globally.

They have approx. 450,000 ha of natural forest concessions and approx. 125,000 ha of industrial forest plantations.

Their production facilities include:

• 7 timber processing plants
• 1 fibreboard production plant
• 10 satellite veneer plants
• 1 power plant
• 2 chemical glue facilities

Their products include:

• Primary and secondary processed timber products
• Harvested logs
• Chemical glues of several types and grades

In 2006, they had an estimated domestic plywood market share of approx. 32%.

Their products are sold to customers all over the world, and export sales accounted for 32% of revenue for FY2007 YTD.

Key Risk Factors:

1. Indonesia suffers from rather frequent natural disasters, and their business will be adversely affected by such occurrences.
   
2. Thier export business could be adversely affected if environmental groups are successful in lobbying government bodies to restrict imports of timber products not manufactured exclusively from renewable sources.
   

Financial figures

Intended IPO price: $0.55
No. of shares available for public offer: 3m
No. of shares available for placement offer: 180m
Total post invitation share capital: Approx. 684.6m

Note: Unaudited 8MFY2008 figures were available in the prospectus.

FY2007
Revenue: $250.8m
Profit: $8.5m
NAV: N.A.
EPS: 0.0124
EPS % Incr: -50%
PE ratio: 44.3x
Price: 0.55

8MFY2008
Revenue: $301.8m
Profit: $9.5m
NAV: 0.4123 (incl. IPO proceeds)
EPS: 0.0139
EPS Incr: 12% (Est.)
PE Ratio: 39.6x
Price 0.55

Dividend policy: No fixed policy.

Conclusion:

Some investors have an aversion to Indonesian stocks because of the political and natural instability suffered by the country.

But in the instance of Samko Timber, there are other issues at hand.

Firstly, I do not know why its PE Ratio is so high. Is it because the company feels that its stock should be valued based on its NAV of $0.41, thus setting its IPO price at a 34% premium to NAV?

Even so, the NAV for such biological asset companies tend to be overestimated because they tend to compute their trees as assets, whereas my opinion is that they should only be considered assets AFTER they are sold.

Secondly, Samko has a profit margin of only 3.1% - i.e. for every $100 of revenue they only earn $3.10 of profit.

Considering those factors, I would prefer to avoid this IPO.

Probability of getting allotted for the IPO - VERY LOW


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.