ACCESS ENGINEERING PLC (AEL.N0000)

Access is one of Sri Lanka’s fastest growing conglomerates. From humble beginnings in 1989, the company has since evolved and diversified into many fields, deriving strength from its core business areas which are engineering and construction, property and real estate, automotive, healthcare, information technology, power and energy, aviation, telecommunication, international trading and water. The company’s strength, however, lies in securing major projects for infrastructure development in Sri Lanka that are funded by bilateral and multilateral donor agencies.

The company’s strategic goal is centred on consolidating and strengthening its existing enterprises whilst aggressively pursuing greener pastures. These include new ventures and markets with untapped potential. Steered by a dynamic and adventurous management team, Access has chartered its course successfully into many challenging territories emerging as one of the most recognised business entities in Sri Lanka.

By Jithendra Antonio

The engineering arm of Access Group, Access Engineering, owned by top businessman Sumal Perera is planning to go public to raise Rs. 5 billion in an Initial Public Offering. The company is currently contemplating on a pre-IPO private placement.

Speaking to Mirror Business, Access Group Chairman, Sumal Perera said, the company will be launching the IPO second half this year towards the end of March.

“Still, we have not decided the exact dates. But we are planning to come up with the IPO probably towards the end of May this year after the private placement” Perera added.

However, he refused to disclose on what the proceedings of the IPO will be utilized.

Sri Lanka’s market regulator recently had said that they were expecting around 50 new IPOs in 2011 with at least two IPOs valued at Rs.5 billion. The biggest IPO in the recent history of Colombo bourse was Laugfs Gas which raised Rs.2.5 billion.

The other IPO that is expected to raise around Rs.5 billion is Sri Lanka Catering, which is expected to come into the market this year.

Most of the post-war IPOs that came into the market to raise funds in the recent times ended up being oversubscribed by over 100 times. The nearest examples were IPOs of Singer Finance and Union Bank of Colombo.

Meanwhile, Access Engineering will be the second largest IPO entering Sri Lanka’s Capital Market after Dialog that raised nearly Rs.8 billion and will surpass expected IPOs such as Vallibel One, Softlogic and Expolanka.

Since its inception in 1990, Access Group ventured into the construction sector in 1994 to secure itself a niche market for providing turnkey engineering services for Gabion related structures and has formally established Access Engineering Ltd., in 2001.

With a vast portfolio of completed private sector and government projects, Access Engineering is one of the entities in the forefront of the civil engineering in Sri Lanka. It has a work force of 1400 employees including over 100 engineering professionals, an in-house design office and a modern fleet of specialized machinery and equipment.

Access Engineering is specialized as contractors for Design and Construction of Infrastructure development projects in the fields of Irrigation & Land Drainage, Water Supply, Highways, Bridges  and suppliers of Engineering related products such as Gabions, Geotextiles, High Density Polythene liners, Bridge Bearing Pads, Bridge Expansion Joints, DI Pipes and fittings, Construction Chemicals, Water Stops, Metal Arch Underpass and Mechanical Stabilized Earth Wall Structures, Water & Sewerage Treatment Plants.

source - www.dailymirror.lk

Latest Research
http://research.srilankaequity.com/t252-access-engineering-ltd-ipo

Directors' and Employees' holding of AEL ( Access ) is about 80% and their cost is LKR 5.00 per share. IPO offers you at LKR 25.00 per share, means 500% more of the principal stake cost. What will happen, is that there will be an enormous selling pressure since the day 1 of trading as the AEL employees are going to take the opportunity to dispose their holdings to make profits. Price will decrease definitely and you can buy AEL from the market less than the introductory offer that of LKR 25 ( Predicted price when it settled in the market : between LKR 15 and LKR 19 ) .. !

Better to buy from the secondary market... all the IPO prices are coming down and here we have millions of free share of AEL working staff also waiting to come to the market..

but employee can't sell, since one year locking period applied for them. anyway it seems this is a good company otherwise who gave share for employees free. They are treating to employees in better way. So future seems good.

But I'll not subscribe this , wait for secondary market.

Thanks for the research report
I will wait to buy in secondary market.. nothing to loose

I,m sure once the employee's start to dispose we will be able to buy this below 1.00 rupee [quote]

This is an awful IPO. it's coming to the market with a PE of 25. there is no way they can justify that valuation

Agree with most above comments.
If someone does not like to apply for this IPO, then all he/she wants to do is just ignore..!!
It's pointless to blame the authorities or a 3rd party later.
Overall its a really good point to see more n more IPOs are coming to the market.

I suppose one thing working for access are the favors mahinda owes them

SEC must ban these kind of IPOs
If IPO price is 25 and if it will hit 12 in the first day , it have a very bad impact on ASI

mono wrote:This is an awful IPO. it's coming to the market with a PE of 25. there is no way they can justify that valuation

I do agree with you.
But in CSE out of 270+ companies, how many companies - we can justify the current market price?
As UKBoy told if we are not interested not to participate in the IPO.

please do not subscribe these kind of IPOs.

Redbulls wrote:

mono wrote:This is an awful IPO. it's coming to the market with a PE of 25. there is no way they can justify that valuation

I do agree with you.
But in CSE out of 270+ companies, how many companies - we can justify the current market price?
As UKBoy told if we are not interested not to participate in the IPO.

So, you don't hold any shares?

mono wrote:This is an awful IPO. it's coming to the market with a PE of 25. there is no way they can justify that valuation

I agree with you. A procedure must be introduced to calculate a share price of a IPO considering all factors.

mono wrote:

Redbulls wrote:

mono wrote:This is an awful IPO. it's coming to the market with a PE of 25. there is no way they can justify that valuation

I do agree with you.
But in CSE out of 270+ companies, how many companies - we can justify the current market price?
As UKBoy told if we are not interested not to participate in the IPO.

So, you don't hold any shares?

My question is how many?
That does not mean all are rubbish.
What I hold is not an issue.

check the conclusion of the research report done by Asia Wealth Management....
"It is noted that based on the financial analysis and the forecast we have done, AEL is clearly a fundamentally strong counter that we could recommend to “SUBSCRIBE”. However, it is fair to bring to notice the possibility of gifted shares to employees (Please refer to slide - Capital Structure) selling in the secondary market subsequent to initial trading. This scenario could bring downward pressure on the share price. Albeit, it is reiterated that
based on financial analysis and forecast , AEL is a fundamentally strong counter."

I think its very unbiased openion

Quibit wrote:Latest Research
http://research.srilankaequity.com/t252-access-engineering-ltd-ipo

If one carefully notices, the purpose of this IPO is to increase the marketability of the 980Mn shares that have already been issued. And the main purpose is not to raise funds through the issue of 20Mn shares to the public. 980 million shares vs 20million shares. Cant they raise this Rs.500Mn through another private placement??

This is new way of raising funds now. First Bonus issues, Sub divisions, private placement and later issue of a small number of shares to give an opportunity to sell shares.

one more point to note that 600 million shares have been issued by way of bonus issue during 2011. The company did not have huge reserves to do the capitalization at the same rate of PP or IPO. Therefore, the rate of capitalization Rs.5 after taking into account of subdivision. if the capitalization was done at the same rate of Private Placement or IPO i.e at Rs.25, they could have issued only 120 millions shares as bonus issue not 600 million shares.

Price to Book Value

Book value per share before this IPO is ......

Net asset value as of 31/03/2011 4,344mn
Issue of shares after 31/03/2011 4,500mn
Total book value ignoring value
creation after 31/03/2011 8,844mn

Book Value per share Rs.9.02 (Rs.8,844mn/980mn shares)

Price to book value 2.77 times (Rs.25/9.02)


Price Earnings Ratio

Profit to equity Holders of the Parent Rs.962mn
Number of shares before PP 800 mn shares
EPS Rs.1.20 (Rs.962mn/800mn shares)
Price Earnings Ratio 20.83 times (Rs25.00/1.20)


However, if you notice 31/03/2011 accounts, there is a one off gain (Most probably one off/irregular) of Net Gain from Fair Value of Investment Property amounting to Rs.291mn.... If we exclude this from the net profit..

Profit to equity Holders of the Parent Rs.962mn
Less: Net Gain from Fair Value of Investment Property Rs.291mn
Profit excluding irregular profits Rs.671mn
Number of shares before PP 800 mn shares
EPS Rs.0.84 (Rs.671mn/800mn shares)
Price Earnings Ratio 29.76 times (Rs25.00/0.84)

(This one of gain has been ignored by the research person)

My reply does not constitute a subscribe/not to subscribe recommendation. It is up to the investors to make a informed decision. I'm have not commented on the Future prospects of the company that matters most. Few lucrative contracts can huge profits to the company. However, as it stands now, the price does not seem to be so attractive to me considering the selling pressure that comes in different dates from PP and employee shares.

Let's redefine the term "IPO" - An opportunity for a private company's shareholders to convert their shares to money.

greedy wrote:

(This one of gain has been ignored by the research person)

Was it accounted in for most of the IPO research docs from broker up to now?

'tis purposely done to bring a valuation attractive IMO...

Finally this is also a mess..

smallville wrote:

greedy wrote:

(This one of gain has been ignored by the research person)

Was it accounted in for most of the IPO research docs from broker up to now?

'tis purposely done to bring a valuation attractive IMO...

Finally this is also a mess..

I don't read much IPO research documents from broker firms but glanced through this one. The best practice is to take off one off gains and "Normalise" earnings in calculating P/E ratios. As per the research document, P/E ratio is 20.37 based on 2011 earnings. However, if we eliminate this irregular gain, P/E ratio would be 29 times.

refer page number 109 in the prospectus (4th line item in the income statement).

How the new rule on IPO is going to affect Access....?

Refer this post...http://forum.srilankaequity.com/t16562-amendments-to-listing-requirements#108425

1) Shares held by promoters and all other shareholders prior to an offering to the public shall be locked-in for a period of 09 monthsths from the date of listing of shares on the CSE

2) A public company which has allotted shares within a period of one year prior to the date of the initial application, all such shares shall be locked-in for a period of 12 months from the date of listing on the CSE.


It is good to see that existing share holders also have a lock-in period as opposed to previous rule which applies to shares allotted on Private Placement.

Is this new rule applicable after 1 April 2012? If that is the case and Access get a listing date before this date, the new rule will not be applicable to Acccess.

Any views on this?

http://forum.srilankaequity.com/t16598-gossip9-about-access#108648

Most market analysts tip the Rs. 500 million Initial Public Offering (IPO) of Access Engineering Ltd., which officially opens on Tuesday 6 March, to be comfortably fully oversubscribed, whilst several brokers too have recommended it.

Lanka Securities, which recommended the Access Engineering IPO as Subscribe, said the forecasted EPS for FY12E is Rs. 1.7 and BVPS stood at Rs. 11.7. Accordingly, the forward PER and PBV for FY12E are 15.0x and 2.1x respectively (at IPO price of Rs. 25.0).

Heavy construction sector is currently trading at a PER of 10.2x, while close peers such as Colombo Dockyard and MTD Walkers are trading at PERs of 9.3x and 14.3x respectively.

Lanka Securities also said based on a complete valuation carried out using discounted free cash flow, the calculated total equity value for the group is Rs. 27.7 billion at the end of FY12E.

Accordingly, the derived value per share of AEL is Rs. 27.70, an upside capital gain of 11.0% over the issue price of Rs. 25.00. “Hence, for a rational investor with a long-term perspective, AEL’s IPO price is justifiable and we recommend Subscribe,” Lanka Securities said.

It is forecasting a net profit of Rs. 1.7 billion (+43.0%) and Rs. 2.1 billion (+25.2%) for FY12E and FY13E respectively. The increase in net profit is mainly driven by the accelerated infrastructure development activities in the country.

The revenue is anticipated to grow at a rate of 76.9% and 37.3% in the next two years supported by the booming construction industry. The construction industry which saw a sluggish activity in recent years is now facing a 9.3% (in 2010) upturn with the mega infrastructure projects undertaken by both government and private sector.

LSL said key risk factors would be possible inflationary economic conditions (e.g. rupee devaluation, increasing interest rates, increasing inflation, etc.) and it may affect the construction cost to increase over the period.

Given AEL’s sound business relationships and impressive track record, Arrenga Capital expects the Group to thrive on future prospects in the construction industry in line with infrastructure development in the country.

“Hence, we expect AEL to record net earnings of Rs. 1.8 billion for FY13E and Rs. 2.6 billion for FY14 featuring a PER of 14.0X and 9.7X respectively,” it said.

The counter, which is in a high growth industry, is offered above market valuations at a price of Rs. 25 per share on FY13E earnings (4Q Trailing Market PER of 11.0X), Arrenga added.

Asia Wealth Management forecast AEL earnings to be Rs. 1.58 billion for FY12E whilst FY13E earnings would remain at Rs. 1.99 billion.

“We expect the company to perform much better with the upcoming construction projects in the pipeline coupled with significant potential in the high-geared construction industry in the country,” Asia Wealth said.
AEL on a forecasted net profit of Rs. 1.58 billion for FY12E, accounts to a PE multiple of 15.8X. Furthermore Asia expects 12.5X and 9.7X on its FY13E and FY14 earnings respectively.

In addition the counter currently trades on a PBV of 5.5X, which we anticipate would improve to 2.1X by the end of FY12E. As opposed to the Construction sector PE of 10.6X and PBV of 1.6X.

“It is noted that based on the financial analysis and the forecast we have done, AEL is clearly a fundamentally strong counter that we could recommend to “SUBSCRIBE”,” Asia Wealth Management said.

However, the broking firm said if gifted shares to employees are sold in the secondary market subsequent to initial trading there could be downward pressure on the share price.

Access Engineering, which made its foray into the motor business with a Rs. 846 million acquisition of a 60% stake in Sathosa Motors, is offering 20 million voting shares at Rs. 25 each.
http://www.ft.lk/2012/03/05/brokers-recommend-buy/#more-75080

Dear Friends,

I kinda have AEL share with me which I invested at IPO.. jst want to know your expert view and suggestions whether there is any positive signs in the share or should i exit and at what price?

Thank you