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News & Analysis » Singapore

SMJ International Holdings IPO: Here’s What You Need To Know

June 27, 2014, Friday, 18:48 GMT | 14:48 EST | 22:18 IST | 00:48 SGT
Contributed by Shares Investment

There’s a market for everything. Carpets, although not as easy to identify, in terms of market reception compared to consumables like bread, or coke, is by and large, in a quiet spot that is profitable, if you look hard enough.

SMJ International Holdings (SMJ) sells and distributes carpets under its proprietary brand “SMJ”, and the third party American brand known as “Shaw Contract Group” (SCG).

The Shaw brand is produced by Shaw Industries (Shaw is a member of Berkshire Hathaway Inc), where SMJ is the sole distributor in Singapore.

How Does SMJ Make Money?

So how does SMJ make money? Revenue is generated from its two business segments, namely its “Contract Sales” (CS) segment, and “Distribution Sales” (DS) segment.

Under its CS segment, notable names that SMJ have done contract work for are the Hong Kong and Shanghai Banking Corporation, DBS Bank, and Apple.

Short turnaround time, choices of good quality material and designs, and of course, SMJ’s belt of superior know how, are the reasons why SMJ does so well in this niche scene in Singapore.

However, as CS are dependent on a number of factors, which are beyond SMJ’s control, like the number of commercial property releases and so on, attention is paid to grow its other segment (DS), which is now outstripping its CS segment.

Its DS segment, has over the years, reflected consistent and positive results for SMJ.

Sales for the DS segment is distributed through its strong network of more than 260 carpet dealers, carpet importers and carpet installation companies in over 20 countries.

Distribution Sales Looking Good

As sales from the DS (which is growing in some key countries) consists of only sales made from the SMJ brand, it is apparent that SMJ’s own brand is establishing a good sense of presence, and it is not reliant on the SCG brand of carpets for sales growth.

This strength is particularly seen in Asia, as SMJ saw progressively pleasant growth coming in from countries like Malaysia, Indonesia, and the Philippines.

Stable Profitability Metrics

Decking the net profit margin and Return on Equity (ROE) in line for comparison, one would’ve noticed a consistent and stable trend.

The double digit ROE, where it averages around 21 percent for the past three years, coupled with the average Net Profit Margin (also over the past three years) of 11 percent shows the good quality of earnings of SMJ.

This is made even clearer where the element of “net cash provided by operating activities” are consistently close to its net profit, which means there isn’t any overbooking of revenue billed, but not yet collected.

Listing Details, Utilisation of Proceeds, Dividend Payout

SMJ is expected to list on 30th June, on the Catalist board of the Singapore Exchange.

The indicative price set for the IPO is $0.28, and a total of 20.24 million placement shares will be issued.

The IPO is expected to list and commence trading on the catalist board of the Singapore Exchange on 30 June 2014, at 9am.

The company is expecting to payout 30 percent of its earnings as dividends to shareholders for financial year 2014 and 2015.

The company is expecting to raise some $2.4 million from the IPO, and the allocation of the proceeds will be as follows:

- Approximately $1.5 million for business expansion (joint venture and/or strategic alliances)

- Approximately $0.34 million for improving its inventory management system and logistics support

- Approximately $0.25 million for marketing and business development

- Approximately $0.31 million for general working capital

Investment Merits

- Strong flagship of recognizable carpet brands in the carpet industry (SMJ and SCG brands)

- Authorised sole distributor of SCG brand of carpets in Singapore

- Strong distribution network (more than 260 carpet dealers, carpet importers and carpet installation companies in Singapore and over 20 countries mainly in Asia) allows greater point of sales and deeper market penetration for SMJ brand

- Stable numbers tracked by its profitability metrics

Investment Risks

- Slowdown in commercial properties’ launches (Singapore)

- Slowdown in economy, demand for its carpets in the countries within its distribution network

- Competition against fragmented buyers within countries its distributors are situated

- Discontinuance of distributorship between SMJ and Shaw

SI Research Takeaway

Growth in SMJ’s distribution segment seems to be only the tip of the iceberg in terms of growth.

Scalability, is still largely not extrapolated, and has the potential to. For instance, SMJ has not even tried going into Europe yet.

The focus in Asian markets for now is quite a good move for SMJ as it concentrates on penetrating deeper into the markets where it expects good growth.