Tuesday, October 10, 2006

IT Boom

Frontline Technologies Corporation Ltd. (FT SP) (SIN:F02) is a provider of end-to-end IT services in Asia. It offers IT consulting, IT infrastructure and enterprise application solutions and systems integration. FT hires over 4000 professionals in eight Asian markets, such as Singapore, China, HK, India and Taiwan. The group is also rated in the top 10% of the Corporate Transparency Index in Singapore and its chairman, Steve Ting continues to hold a sizable 12% stake.

As one would expect, the IT space is a highly competitive and the environment is a "cut throat" one. This is evident in the thin profit margins of FT. Its net profit margin for FY2006 was 5.5%. Since any cash generated is utilized for capital expenditure or acquisitions, FT has not paid a dividend recently. Given these seemingly unattractive features, why would FT be featured?

The first reason is that it is trading at a low P/S of 0.66. The second, which is also the crux of this post, is that FT has a subsidiary that is listing soon. This Chennai based subsidiary, Accel Frontline Limited (Accel), is seeking a listing on the Bombay Stock Exchange. The IPO subscription period has just closed. This new issue was 2.44x over-subscribed. In particular, it is reported that retail investors had bid for 4 more times than the shares offered. As a result of Accel's listing, the net tangible assets of FT will swell to $0.14 per share. Curiously, trading for FT has been range bound between $0.13 to $0.135 per share. This price range is actually below its revised NTA! Perhaps the market is distracted by boom of the North Korean "nuclear" test? FT, which trades on the Singapore Exchange, closed at $0.135 today.



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