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

Prime Residencies IPO. Over Priced?

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God Father


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? - Page 2 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? - Page 2 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? - Page 2 Screen44
Prime Residencies IPO. Over Priced? - Page 2 Screen45
Prime Residencies IPO. Over Priced? - Page 2 Screen46
Prime Residencies IPO. Over Priced? - Page 2 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? - Page 2 Screen48
Prime Residencies IPO. Over Priced? - Page 2 Screen49


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

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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.

KingMaker2020 likes this post

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.

kusxn likes this post

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

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

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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Post Tue Jun 08, 2021 6:01 pm by SAGA

it seems majority including foreigners bought it at below 12.50/=.see the details.

https://www.youtube.com/watch?v=4-7ieeKaGKc

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Post Tue Jun 08, 2021 8:52 pm by SAGA

Technical analysis on PRL doesn't support much buying.it says neutral.

Pls see below link

https://www.youtube.com/watch?v=Erlv9V4UlbE

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Post Tue Jun 08, 2021 11:38 pm by madukp

Its natural. When pl are in queue to sell wholesale, no one bothers to buy with a competition. But we can't refuse the fact that some collection is happening. If the trend keeps continuing tomorrow, the share can be again fallen further down, maybe after a reasonable upward collection in the morning.

Lotus Eater

Post Wed Jun 09, 2021 6:54 am by Lotus Eater

This is the  Fault of the CSE for not regulating this IPO Pricing.
One bad IPO is enough to kill the entire IPO market.
Prime IPO has just done that.

" RESEARCH REPORT PREPARED BY THE MANAGERS TO THE IPO JUSTIFYING THE IPO PRICE"

This was the IPO Prospectus says

Who is responsible for the over pricing of the IPO?
Who is going to take action to safeguard the interest of the Investors?

Good luck Sri Lanka

මෙම මූලික කොටස් නිකුතුව මිල නියම කිරීම නියාමනය නොකිරීම පිළිබඳ කොළඹ ව්‍යාපාර කොටස් වෙලංදපොඑ වැරැද්ද බර ගත යුතුය.
සමස්ත මූලික කොටස් නිකුතුව වෙළඳපල විනාශ කිරීමට එක් නරක මූලික කොටස් නිකුතුවක් ප්‍රමාණවත් වේ.
ප්‍රයිම් අයිපීඕ දැන් එය කර ඇත.

"අයිපීඕ මිල සාධාරණීකරණය කරමින් අයිපීඕ වෙත කළමනාකරුවන් විසින් සකස් කරන ලද පර්යේෂණ වාර්තාව"

මූලික කොටස් නිකුතුවෙහි අධික මිල ගණන් සඳහා වගකිව යුත්තේ කවුද?
ආයෝජකයින්ගේ උනන්දුව ආරක්ෂා කිරීමට පියවර ගන්නේ කවුද?

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Post Wed Jun 09, 2021 10:16 am by Walbaba

හොඳට BELL එක වැදුනා!
උන්ට හරි ගියා.. අපිට කෙළ වුනා..

Prime Lands Residencies Limited rang the market opening bell yesterday to commence trading on the CSE. at a special fully Virtual Market Opening Ceremony organized by the CSE
https://twitter.com/CSE_Media/status/1402473095093444609?s=20

Home Prime Lands Residencies makes CSE trading debut
Prime Lands Residencies makes CSE trading debut

Prime Residencies IPO. Over Priced? - Page 2 Z_p11-Prime-Lands2

Prime Lands Residencies Limited (PLR-N-0000) rang the market opening bell yesterday to commence trading on the Colombo Stock Exchange (CSE) at a special fully Virtual Market Opening Ceremony organized by the CSE. The company listed 937,500,000 Ordinary Voting Shares and has been classified under the Industry Group “Real Estate (6010)”.

Brahmanage Premalal, Group Chairman of Prime Lands Residencies Limited, Ray Abeywardena, Group Managing Director / CEO of Acuity Partners (Private) Limited and Dumith Fernando, Chairman of the CSE spoke at the event.

The Chairman of the CSE Dumith Fernando congratulated the company on the special occasion “Today marks the listing of a company of Real Estate sector. This sector is under represented on the market capitalization of the CSE.

That makes this listing special as Prime Lands Residencies is coming to the market very successfully.

Prime Lands Residencies‘IPO was oversubscribed on its first day and raised Rs. 1.95 Bn. This is the third listing this year and each of them raised their full fund raising goal within the first day through oversubscription. This proves the resilience and the robustness of the CSE as a venue for capital raising.”Group Chairman of Prime Group, Brahmanage Premalal welcomed the new shareholders to the company and added “I believe that there is no better way of welcoming our shareholders into the organization than by achieving an oversubscription on the very first day of the issue.

Going public is a significant milestone for any business, and we are very proud about this achievement.” Speaking at the event Group Managing Director / CEO of Acuity Partners (Private) Limited¸ Ray Abeywardena remarked “Prime Lands Residencies is indeed a success story that is legendary, started by two entrepreneurs over 25 years ago.

The organization has grown to be a powerhouse in the Real Estate Industry. It is a most respected entity having won many accolades and achievements. The IPO was a tremendous success.”

“This was at a time when we were heading for the lockdown given the increase in the pandemic. The fact that we were able to hold the share issue and conclude it successfully speaks volumes. Projections that Prime Lands Residencies put forward in terms of their growth numbers attracted an overwhelming measure of confidence by investors. Prime Lands Residencies Share issue also set a new record for the number of applications that we received via online. 52% of the applications that came through were online.”

kusxn likes this post

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Post Wed Jun 09, 2021 11:44 am by SAGA

I think most of the investors are awaiting for JAT arrival

Balaya1979 likes this post

Mr. X

Post Wed Jun 09, 2021 11:56 am by Mr. X

with this speed it will reach 10 soon.... wonder who collect those.. Idea Idea

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Post Wed Jun 09, 2021 11:59 am by God Father

Prime Residencies IPO. Over Priced? - Page 2 Screen50
Prime Residencies IPO. Over Priced? - Page 2 Screen51

https://cdn.cse.lk/cmt/announcement_portal_prod/PLR_CSE%20Disclosure%20on%20date%20of%20Listing_080621_35096791587589.pdf

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Post Wed Jun 09, 2021 12:11 pm by SAGA

It seems it will settle around 11.40 today

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Post Wed Jun 09, 2021 3:21 pm by Galeon

This was expected in my view. You are better off not buying the IPOs of companies that are mainly run by family controlled boards. These IPOs will mainly benefit the owning family or the close group of people. We have had many examples in the past. PC House, Tess and etc..

CHRONICLE™ likes this post

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Post Wed Jun 09, 2021 3:50 pm by madukp

It's time to sell fear and hunt bargain. We can see the same is happening in the forum as well. Let's look at the currents status. Today, almost 5M selling under 12, the share is closed at 11.30 which is still 8.6% gain w.r.t. IPO price. Selling may still continue. This is as expected when there are the majority of public shares in the market. Still, PLR is a good short-term investment. the share price will gradually pick up when selling pressure is over. I'm slowly collecting this share. Though I cant exactly point out, this will be settled higher than 60% of IPO price during the next run. Additionally, We may anticipate a reasonable dividend down the line.
Disclosure: not a buying/selling recommendation and I am holding this share.

CHRONICLE™ likes this post

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Post Wed Jun 09, 2021 4:44 pm by Hope123

Yes madup, i too have stared collecting it. It looks like selling pressure is easing. So far 11.40 holds well. Lets see what next.

madukp likes this post

Plr prime residences buy at big dip now? Can I make 200% return?

N W likes this post

High-flyer

Post Wed Jun 09, 2021 5:37 pm by High-flyer

@N W wrote:Plr prime residences buy at big dip now? Can I make 200% return?

200% is very extreme number.

You may able to get around 15% /20% in short run.

Wolf86

Post Wed Jun 09, 2021 5:49 pm by Wolf86

Plr got massive selling pressure.. Otherwise last day it reach 20 ++. meny treaders got massive lost sure.. Let's see tomorrow

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Post Wed Jun 09, 2021 7:23 pm by SAGA

see below is the transactions happened

PriceTotal QtyTotal ValueTradesChangeLot
12.0050,231602,77210.10N
11.906,79680,872120.00N
11.8086,5721,021,55049-0.10N
11.70162,6741,903,28687-0.20N
11.60535,2726,209,155182-0.30N
11.501,694,54219,487,233430-0.40N
11.401,751,93619,972,070591-0.50N
11.30692,6607,827,058147-0.60N

CHRONICLE™ likes this post

Wolf86

Post Wed Jun 09, 2021 7:44 pm by Wolf86

1st day some sold with profit some collect above 12.50. (600000000+cash ..this will move tomorrow or Friday ..

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Post Thu Jun 10, 2021 2:42 am by madukp

Don't expect quick gains guys, watch carefully. Analyze the trade sums. majority of the shares been traded between 12-13. To be exact, 62.59% ( 33,387,339 to from total # of 53,344,296 shares been traded from 13 to 12. This is as of the EOD, the second day of the market. The problem is not overpriced IPO or anything, actually, there is no problem at all. IPO subscribed by many individuals and all the small-scale to high scale individuals received 100% of the shares they have applied. (In my case, I am not agreeing with this). Seems the majority is realizing the profits, they seem satisfied with few bucks. Study the share movement and decide what you like to do. invest as a short term and enjoy the profits, exit with a small profit in hand, or sell at loss (those who have picked around 12-13). Its your decision Cool

soileconomy

Post Thu Jun 10, 2021 4:18 am by soileconomy

I have lost trust on this group  as their finance arm  has not upto expected level even after many years.same will apply to this in years to come
No dividend no capital gain

Useless group

Nandun likes this post

soileconomy

Post Thu Jun 10, 2021 4:30 am by soileconomy

@Lotus Eater wrote:This is the  Fault of the CSE for not regulating this IPO Pricing.
One bad IPO is enough to kill the entire IPO market.
Prime IPO has just done that.

" RESEARCH REPORT PREPARED BY THE MANAGERS TO THE IPO JUSTIFYING THE IPO PRICE"

This was the IPO Prospectus says

Who is responsible for the over pricing of the IPO?
Who is going to take action to safeguard the interest of the Investors?

Good luck Sri Lanka

මෙම මූලික කොටස් නිකුතුව මිල නියම කිරීම නියාමනය නොකිරීම පිළිබඳ කොළඹ ව්‍යාපාර කොටස් වෙලංදපොඑ වැරැද්ද බර ගත යුතුය.
සමස්ත මූලික කොටස් නිකුතුව වෙළඳපල විනාශ කිරීමට එක් නරක මූලික කොටස් නිකුතුවක් ප්‍රමාණවත් වේ.
ප්‍රයිම් අයිපීඕ දැන් එය කර ඇත.

"අයිපීඕ මිල සාධාරණීකරණය කරමින් අයිපීඕ වෙත කළමනාකරුවන් විසින් සකස් කරන ලද පර්යේෂණ වාර්තාව"

මූලික කොටස් නිකුතුවෙහි අධික මිල ගණන් සඳහා වගකිව යුත්තේ කවුද?
ආයෝජකයින්ගේ උනන්දුව ආරක්ෂා කිරීමට පියවර ගන්නේ කවුද?
Definitely it is overpriced
Research report prepared by managers to the issue even say Rs 17 will good price for IPO
This kind of share issues will kill the market sen
CSE AND SEC SHOULD NOT ALLOW TO THIS HAPPEN AGAIN

CHRONICLE™ likes this post

Harry82

Post Thu Jun 10, 2021 6:14 am by Harry82

Rs 8.00 is the best price.

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Post Thu Jun 10, 2021 11:55 am by Good bad

What’s happening to prime residencies?
Price Gradually decreasing day by day !

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Post Thu Jun 10, 2021 12:00 pm by SAGA

Yes Harry I think it will come down to 8/= - 8.50/=

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Post Thu Jun 10, 2021 12:23 pm by Good bad

Seems like damage is recovering now!! Price is slowly going up

Wolf86

Post Thu Jun 10, 2021 12:27 pm by Wolf86

10. 80 to 11.50 best buy.. It will fly soon

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