MANY Asians would regard death as a taboo, but this has not stopped investors from putting their money into Malaysian integrated bereavement care service provider Nirvana Asia Ltd’s initial public offering (IPO). The company, which debuted on the Hong Kong Stock Exchange (HKEx) on Dec 17, raised HK$2 billion (RM901.9 million) and is poised for its next phase of growth in Asia, especially China.
In an interview with The Edge, Nirvana group managing director and CEO Datuk Kong Hon Kong says, “With the profile of a listed company in Hong Kong, it is easier for us to penetrate the China market as we have more visibility. Yes, China is our next big market. With a track record of 24 years, we are confident that we will be able to do that. However, at the same time, we will continue to focus on our strength in the Southeast Asian markets.”
The company had signed a memorandum of understanding (MOU) with a Guangdong cemetery operator in September to explore investment opportunities in the bereavement care service market in the province. Closer to home, it had signed an MOU with a landowner in Ho Chi Minh, Vietnam, to establish a greenfield cemetery.
Kong says the next step will be to complete the due diligence of the two MOUs, but he declines to provide a deadline for the completion as it will depend on the complexity of each due diligence.
“Normally, if it is a greenfield development, it will be easier (to complete the due diligence) because there are no existing operations to audit, which is the case for Vietnam. If it’s an existing cemetery, it will take a longer time to complete the process and get all the approvals,” he says.
Nirvana has allocated 40% of its IPO proceeds for the establishment of new cemeteries, columbarium facilities and funeral homes in new markets through greenfield projects; 25% for potential acquisitions of existing bereavement care service providers; 25% for increasing the capacity of its existing cemeteries, columbarium facilities and funeral homes via land acquisitions and new construction; and 10% as working capital.
The company has operations in Malaysia, Singapore and Indonesia, and will add Thailand to the list in 2015. Chinese communities across Southeast Asia hold similar traditions, with most preferring a burial over a cremation.
“You must know that the Chinese allocate a high budget for this kind of expenses. They would opt for a burial if they can afford it. Chinese traditions won’t change, so there will always be growth for our company as population increases,” says Kong.
Nirvana’s profitability has been rising over the last three financial years, with its net profit more than doubling from US$18.38 million in 2011 to US$37.79 million in 2013. Meanwhile, its revenue increased 19.6% to US$139.72 million for the same period. For the six months ended June 30, 2014, the company posted a net profit of US$14.86 million against revenue of US$70.6 million.
Currently, more than 80% of Nirvana’s revenue is derived from Malaysia, but Kong is hoping that the contribution from overseas will expand gradually as the company extends its operations to markets outside of Malaysia.
It is worth noting that the company’s gross margins are higher than most industries. Its columbarium facilities raked in the highest gross margin at 78.5% in FY2013, while its burial plots commanded a gross margin of 75%. Funeral services yielded a gross margin of 57%, while the tomb design and construction business registered a gross margin of 47.4%. Overall, for FY2013, the company’s gross margins averaged 69.6%, while its net margin stood at 27%.
Following its IPO, Nirvana would have a net cash position of US$261 million. According to its prospectus, the company has been paying out dividends of not less than 30% of net distributable profits for each financial year.
Based on the dividend payout of US$19.3 million (HK$149.58 million based on an exchange rate of 7.75 per US dollar) for FY2013, which works out to 5.5 cents per share, Nirvana’s stock had a dividend yield of 2.78% as at last Monday’s close of HK$1.99.
However, since listing on HKEx, Nirvana’s share price has been on a downward trend, closing at HK$2.10 on its first trading day. The company set its issue price at HK$3 apiece, with an estimated forward price-earnings ratio (PER) of 18 times.
According to Kong, the fall is attributed to jittery retail investors due to seemingly worsening global market conditions as crude oil prices plunged. Nonetheless, he believes that the share price will rebound as he is confident that the company will be able to deliver the performance promised to investors.
Its peer, China-based Fu Shou Yuan International Group Ltd, which listed on the stock exchange in December 2013, fared better on its debut. On listing, Fu Shou Yuan’s share price jumped to HK$5.30 from its issue price of HK$3.33 with a forward PER of 25 times. The share price, however, had fallen to close at HK$3.75 last Monday.
“It doesn’t reflect the actual price. Of course we know that, but it also depends on market sentiment — the willingness of investors and how they look at the market. They actually play an important role. We could have priced it higher but at the end of the day, because of market volatility, the decision was to price it at HK$3,” says Kong.
On the company’s decision to price its stock at the minimum issue price despite it being Asia’s largest bereavement care service provider in terms of landbank and revenue, Kong says, “Partly, I think investors also still believe in China companies. Whether you like it or not, China is still a big market.”
Be that as it may, Nirvana should enjoy higher trading volume in Hong Kong than when it was listed on Bursa Malaysia in 2000. At the time, the company was listed under the name NV Multi Corp, but was taken private by Kong and Portwell Investments Ltd in 2010 at 78 sen a share due to low trading volume. The stock was trading at 64 sen apiece on the day prior to the privatisation offer.
This article first appeared in The Edge Malaysia Weekly, on December 29, 2014 - January 04, 2015.
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