Kong: Nirvana Asia will deliver on promise to investors

NIRVANA Asia Ltd founder Datuk Kong Hon Kong (pic) is confident that the company will deliver the financial results that it has promised to investors and its share performance will improve.

“We are happy that we have managed to raise HK$2.02bil from the listing,” he told a press briefing in Hong Kong last week.

Nirvana Asia was listed on the Hong Kong Exchange recently. Its share price has fallen about 35% to HK$1.93 on Wednesday from its initial public offering (IPO) of HK$3, after issuing 674.7 million shares in its IPO.

The company was listed at a time when the overall market sentiment was weak mainly due to uncertainties in the external environment.

Kong added that the company’s fundamentals had not changed since the listing, and it would continue to operate as usual to achieve the targets it set for itself. He believes it’s an opportune time for investors to accumulate shares in the company.

Market watchers say one of the reasons for Nirvana’s lacklustre share price performance is the large portion of retail investors. Prior to its book building exercise, the company had allocated 90% of its IPO to institutional investors while the remainder 10% went to retail investors.

However, under the Hong Kong public offering, Nirvana’s shares were more than 50 times oversubscribed.

In a statement issued on its website, Nirvana said a total of 17,695 applications were received for 3.49 million shares. This represents approximately 51.67 times of the 67.47 million shares made available to the Hong Kong public.

According to regulations of the Hong Kong Exchange, oversubscription of more than 50 times requires Nirvana to reallocate and clawback the final number of shares under the public offering.

Therefore, Nirvana increased its Hong Kong public offering to 269.88 million shares, representing approximately 40% of its IPO.

“This is Hong Kong. Investors here behave differently,” says Kong.

Of the 674.7 million shares it offered in its IPO, 404.82 million went to international placing shares while the remainder 269.9 million went to Hong Kong offer shares.

It is the first Malaysian company to have a singular listing on the Hong Kong Exchange, and apparently also the only foreign company to list on the exchange this year.

Kong says the listing in Hong Kong will also enable easier entry into the China market. It recently signed a memorandum of understanding (MoU) with a cemetery operator in Guangdong province, China to develop a greenfield cemetery.

Apart from China, Nirvana also signed a MoU with a land owner in Vietnam to establish a greenfield cemetery near Ho Chi Minh city.

The company is still conducting due diligence on both deals, but Kong remains confident that those deals will be closed in due time.

This is in line with its strategy to increase contribution from its overseas operations in the future. Its Malaysian operations currently contribute more than 80% to the group’s revenue.

A majority of its IPO proceeds, about 40% will be used to acquire more land in Malaysian cities that it has not yet covered, as well as in Jakarta and Bangkok.

Kong says it may take between one and three years to utilise the proceeds. Its land bank as of June 30, 2014 stood at 2.2 million sq m.

Meanwhile, it has put aside 25% of the proceeds for potential mergers and acquisitions in Malaysia, China and Indonesia.

It has also allocated 25% of its proceeds to expand the capacity of its existing cemeteries, columbarium facilities and funeral homes.

The remaining 10% of IPO proceeds will go to working capital.

The company was previously listed on Bursa Malaysia under the name NV Multi Corp Bhd on Aug 23, 2000.

Ten years later, it was taken private by Kong and his son Kong Yew Foong through their vehicle Mutual Tactic Sdn Bhd and parties acting in concert, due to a lack of liquidity in its shares.

In an announcement to Bursa in October 2010, the company said Mutual Tactic, which is a unit of Peace Ventures Ltd offered to take the company private for about RM295mil or 78 sen per share, representing a price-earnings ratio of 9.79 times.

The shareholders of Peace Ventures are Rightitan Sdn Bhd (70%), which is controlled by Kong and Yew Foong, and Portwell Investments Ltd (30%), whose directors were Asiasons Capital Group managing directors Datuk Jared Lim and Ng Teck Wah.

Later in 2012, Asiasons disposed off its interests in Portwell.

Rightitan is an investment holding company controlled by Kong.

Rightitan remains the largest shareholder in Nirvana with a 42.70% stake, while private equity firms Orchid Asia V GP Ltd and AIF Capital Asia IV GP Ltd, which invested in Nirvana ahead of its IPO, own 21.64% and 10.66% respectively post-listing.

Taikang Life Insurance Co Ltd and ViewFinder L. P. are cornerstone investors in Nirvana, each taking up US$30mil of the deal.

DBS and UBS are joint sponsors of the IPO exercise while CIMB is a joint bookrunner.

For the six-month period ended June 30, 2014, Nirvana’s revenue grew to US$70.6mil from US$66.1mil. However, net profit fell to US$14.9mil from US$17.74mil a year ago.

Post the IPO, the company is in a net cash position of about US$260mil (RM910mil).

According to research conducted by Frost & Sullivan, Nirvana is the largest integrated death care services provider in Asia in terms of contract sales, revenue and land bank.

It currently runs 10 cemeteries, 12 columbarium facilities as well as two funeral homes across Malaysia, Singapore and Indonesia.

In terms of contract sales, Nirvana has market share of 56.3% and 78.5% respectively in Malaysia and Singapore.

Meanwhile, in Indonesia Nirvana holds a 36.1% market share.

The IPO gave investors the opportunity to buy into a very different and niche industry, compared with what makes up the Hong Kong market. This is supported by the fact that there are very few Asian funeral services companies that have gone public.

China-based Fu Shou Yuan International Group listed on the Hong Kong Exchange last December, after raising HK$1.67bil from its IPO.

The cemetery developer has a current PE of 27.4 times and market capitalisation of HK$7.78bil. Its share price has risen 12.61% to HK$3.75 on Wednesday since listing on Dec 19, 2013.

One of the reasons Nirvana took its listing to Hong Kong, rather than Bursa, was because it has comparable companies on the exchange.

Another benchmark company is Taiwan-­listed Lung Yen Life Service Corp, which also provides funeral services. This company has a PE of 16.24 times at its current share price of Taiwan dollar 95.30.

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