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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Prime Residencies IPO. Over Priced?

Prime Residencies IPO. Over Priced?

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God Father

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Manager - Equity Analytics
Manager - Equity Analytics
We have carried out a detailed analysis of the business operations of PLR to arrive at an average of the Discounted Cashflow based valuation method and P/E multiples based method on trailing 12 months’ earnings and forward earnings, and the results have been summarized below.

Prime Residencies IPO. Over Priced? Prime10

We estimate the Ordinary Voting Shares of PLR to have an average fair value per share of LKR 17.39, given the Company’s operational and strategic dynamics and industry dynamics of the residential real estate industry in Sri Lanka.
Considering your intention to offer an upside to potential investors and the healthy marketability of shares, we recommend an Issue Price of LKR 10.40 per share at an Earnings Multiple of 8.01x, 34% discount to the DCF based value, 36% discount to the trailing P/E based method and 48% discount to the forward P/E based method.

Prime Residencies IPO. Over Priced? Screen43

8.0 VALUATION RESULTS
The following section illustrates key valuation assumptions and the resultant equity valuations as at 31 January 2021 for the Company based on the methods discussed in this Research Report.
8.1 Discounted Cash Flow Methodology
Free Cash Flow to Firm formula has been used in calculating the fair value of Ordinary Voting Shares of Prime Lands Residencies Ltd.
8.1.1 Cost of Equity
▪ Risk free rate: eight year treasury bond rate of 7.07% as of 15 September 2020 (source: Central Bank of Sri Lanka) has been used as the base risk free rate and the risk free rate has been assumed to increase up to 9.99% by FYE 31 March 2024 and remain constant thereafter.
▪ Market risk premium of 5% has been assumed.
▪ An alpha of 5% has been assumed in order to accommodate unsystematic risk factors pertaining to the
valuation.
8.1.2 Cost of Debt
▪ Pre tax cost of debt of the Company has been assumed to be at 8% in FYE 31 March 2021 and assumed to increase gradually up to 12% by FYE 31 March 2024. Thereafter, the pre tax cost of debt is assumed to remain constant at FYE 31 March 2024 level during the explicit forecast period.
▪ Corporate income tax rates as elaborated in Section 6.8 above has been used in calculating the post tax cost of debt.
8.1.3 Capital Structure and Weighted Average Cost of Capital (WACC)
A variable gearing ratio methodology over the explicit forecast period and a optimal gearing ratio of 11.80% in the terminal period have been used in arriving at the weighted average cost of capital for the Company.
8.1.4 Terminal Growth Rate
A terminal growth rate of 2% has been used in arriving at the terminal value of the Company.

Prime Residencies IPO. Over Priced? Screen44
Prime Residencies IPO. Over Priced? Screen45
Prime Residencies IPO. Over Priced? Screen46
Prime Residencies IPO. Over Priced? Screen47

Unrealistic Assumptions and forecasts to justify over pricing.

6.2 Cost of Sales
The average gross profit margin (excluding project finance expenses) of completed projects as at 30 September 2020 is 29.23%.
The average gross profit margin (excluding project finance expenses) of projects which are under construction as at 30 September 2020 is 26.25%.
Furthermore, the gross profit margin of future projects which are to be initiated during the explicit forecast period has been assumed as 25%.
In addition to the above, project overhead cost of 0.30% of the total net revenue and costs on repurchases of 0.50% of the total net revenue has been assumed under cost of sales of Prime Lands Residencies Ltd during the explicit forecast period.

Prime Residencies IPO. Over Priced? Screen48
Prime Residencies IPO. Over Priced? Screen49


https://cdn.cse.lk/pdf/upcoming_listing/prime-pros6-23-04-2021.pdf

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Post Tue May 11, 2021 5:08 pm by ChooBoy

Prime Residencies IPO. Over Priced? Screen34

Wonderful Financial Forecast. LKR 15bn cash lying in the basement of Prime Residencies in year 2025.
HIKZZZZ....

Prime Residencies is heavily exposed to execution risks in certain real estate projects: During FY2017, the Company had launched a new larger scale tier-01 apartment project in Colombo-07 (with the total sales value of LKR 30 Bn), targeting the premium market in the country. This project is a 100% residential apartment project, unlike other mixed development projects in the City. PRIMER has currently completed ~60% of this project and is expected to complete it in CY 2021.

After adjusting for the debts taken up for the project, this project has currently reached the breakeven sales levels. Going forward, the Company intends to fund the completion of this project from the pending cash collections (of the presales customers) as well as new sales without significant debt facilities. ICRA Lanka would continue to monitor the progress of this project and the ability of the management to successfully achieve its sale and cost targets within the envisaged time-lines would remain as a sensitivity to the assigned rating.

Dilip likes this post

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Post Fri Jun 04, 2021 3:35 pm by ChooBoy

It is far better not to invest, than investing in a company that mislead investors for the benefit of majority owners.

Investors are not dumb!

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Post Mon Jun 07, 2021 2:44 pm by Good bad

 Can prime residencies reach above Rs 100 per share in opening day ?

Hitazz and kusxn like this post

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Post Mon Jun 07, 2021 2:58 pm by kusxn

In my opinion, I feel that Prime Residencies is undervalued considering the projects they're taking part in. The Ward Place Project could bring in good profits for the company and a 40% dividend payout is also attractive.

My expectation is a 20-50% rise in the opening day, or even possibly more.

Note: This is my opinion

kusxn likes this post

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Post Mon Jun 07, 2021 5:43 pm by Vasyan

@kusxn wrote:In my opinion, I feel that Prime Residencies is undervalued considering the projects they're taking part in. The Ward Place Project could bring in good profits for the company and a 40% dividend payout is also attractive.

My expectation is a 20-50% rise in the opening day, or even possibly more.

Note: This is my opinion

20% to 30% possible.. this is a good enough return who applied for IPO

kusxn likes this post

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Post Tue Jun 08, 2021 2:53 am by madukp

PLR is the most undervalued IPO. It should gain at least 60% if not the first day but then later on. There might be a dividend soon as well. Btw, share density is high compared to CWL which was insanely almost tippled on the commencing day. Therefore we cant expect something like that tomorrow. However, given the time investors might have a chance to double their profit.

KingMaker2020 and kusxn like this post

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Post Tue Jun 08, 2021 10:53 am by Wickyz

ARE YOU READY ? cheers

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Post Tue Jun 08, 2021 11:04 am by samaritan

Be mindful that there is an oversupply of high end apartments and developers are carrying excess inventory. 
Partying will not last long!

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Post Tue Jun 08, 2021 11:23 am by dilshangac

My target is 18/-

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Post Tue Jun 08, 2021 11:27 am by kusxn

It reached 14.90 LKR today. My opinion is that it will rise again. 
I've set my target at 15.00

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Post Tue Jun 08, 2021 11:31 am by Wickyz

500,000 SOLD AT 14.00

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Post Tue Jun 08, 2021 12:07 pm by dilshangac

@kusxn wrote:It reached 14.90 LKR today. My opinion is that it will rise again. 
I've set my target at 15.00
Yes of course. This will definitely bounce back. Big hunters is trying to crash the market & try to collect it at a cheap price. Don't be panic. This is worth more than 15/-

kusxn likes this post

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Post Tue Jun 08, 2021 12:55 pm by madukp

Currently over 40M shares traded and continuous dumping @ 12.30.
This price is fairly undervalued for an investor. Seems most of the guys want quick cash. Hopefully, it will rise when the selling is done around 12-13. Price depends with traders psychology, especially given the fact that there is considerable public holding in hands, selling may keep on continue.

kusxn likes this post

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Post Tue Jun 08, 2021 1:22 pm by KingMaker2020

@madukp wrote:Currently over 40M shares traded and continuous dumping @ 12.30.
This price is fairly undervalued for an investor. Seems most of the guys want quick cash. Hopefully, it will rise when the selling is done around 12-13. Price depends with traders psychology, especially given the fact that there is considerable public holding in hands, selling may keep on continue.

I agree on a bounce back to 15-15.50 levels..

Disclosure - collecting at current levels  Very Happy

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Post Tue Jun 08, 2021 1:37 pm by ChooBoy

I an not suprised if it trades below 10/=

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Post Tue Jun 08, 2021 1:45 pm by KingMaker2020

@ChooBoy wrote:I an not suprised if it trades below 10/=

So that you can collect? Razz

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Post Tue Jun 08, 2021 1:56 pm by Good bad

Prime is falling down like a nothing people hopes watched out!!
🤦🤦🤦🤦🤦 more hopes nothing come out !!!

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Post Tue Jun 08, 2021 2:23 pm by ADVENTUS

Seems like the company spent a lot promoting the IPO and hence it should be regarded as a pump! 
Hope investors and traders watch out for this.

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Post Tue Jun 08, 2021 2:31 pm by summa

What a selling preasure

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Post Tue Jun 08, 2021 2:39 pm by kusxn

I'm still holding on to my shares. Hopefully it will bounce back tomorrow. 

The 40% dividend payout would still attract investors.

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Post Tue Jun 08, 2021 2:46 pm by madukp

Don't see anything to be panic. It's a considerable public holding. We've seen continuous profit-taking plus meantime some have been patiently collecting too. Expecting a little uptrend on tomorrow morning, the rest will be decided by selling parties Very Happy . Anyway my personal idea, it's good for a short-term investment.

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Post Tue Jun 08, 2021 3:27 pm by smnsam

very disappointed, Prime Land share looks like going back to 10/

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Post Tue Jun 08, 2021 3:51 pm by Pradeep90

https://youtu.be/mFB5NmX3Bok

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Post Tue Jun 08, 2021 5:32 pm by Vasyan

Prime LAND will be settled at 12/= .IPO shares always good to sell at first half .. don't worry about exceptions like CWL CRISSWORLD

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