Sozo Global — initial public offering

Sozo Global Ltd
(listing date Dec 17. Offer price 80 sen)
Fair value 92 sen: Sozo Global specialises in ready-to-serve (RTS) duck products. Together with other pre-cooked gourmet meat and meat with vegetable products, the RTS food division accounted for 73.2% of FY09's turnover of RM314 million. The balance came from frozen vegetables (12.1%), canned food (8.5%) and others (6.2%). In terms of geographical contribution, China made up 92.3% of revenue last year, though a sizeable portion of local sales is believed to be subsequently re-exported to countries like Japan.

Demand for RTS food — either frozen or vacuum packed for convenient storage, easy preparation and quick consumption — is expected to increase due to changing eating habits. Leveraging on this trend, Sozo Global intends to set up a third production plant (adding 44% of extra capacity) by 2011. There are also plans to start: i) a poultry farming and breeding facility; ii) poultry processing facility; and iii) a halal food processing facility in Malaysia (possibly tying up with indirect shareholder Khazanah). We have projected a net profit CAGR of 17% between FY2009 and FY2011 for the group, to be driven by rising demand for its food products.

We arrive at our 92 sen fair value based on four times PER on FY2011F earnings. This is at the lower end of the valuation range for selected peers of a similar size listed overseas. We see fairly limited downside risk in the stock because of: i) low valuation (ex-cash FY2011 PER of 2.3 times); and ii) 376.3

million or 80.4% of the shares collectively owned by the founders and pre-IPO investors will be locked up for 12 months post-listing. The company has also begun the process of seeking a secondary listing (possibly in Hong Kong) within the next year, which may boost its profile and diversify its shareholder base. — HwangDBS Vickers Research, Dec 8


This article appeared in The Edge Financial Daily, December 9, 2010.