Hong Kong listed stock darling Magnum Entertainment night clubs with iconic gold toilets issued a profit warning

A message from Mr Yip Mow Lum…

Paul Murphy

| Mar 25 10:30 | 2 comments Share

He’s the chairman of just-and-so Hong Kong listed Magnum Entertainment and here’s the news:

PROFIT WARNING

…The board of directors of the Company (the “Board”) wishes to inform shareholders of the Company (the “Shareholders”) and potential investors that, based on a preliminary review of the unaudited management accounts of the Group for the eleven months ended 28 February 2014, the Group recorded a substantial decrease in profit for the eleven months ended 28 February 2014 and it is expected to record a loss for the year ending 31 March 2014…

We might applaud the frank approach to corporate communications here; the statement certainly says what it is. But Magnum, which operates three night clubs in Hong Kong, only floated at the end of January.

That’s the performance of these shares before the profit warning. Clairvoyant investors, clearly, or maybe the company’s woes were on open show to all club-goers…

image001-4 image002-9

Mar 25, 2014

Party Winds Down for ‘Jagerbomb’ Nightclub

MICHELLE YUAN

Gold toilet at Magnum Club in Hong Kong

image003-8

One day you’re hot, the next you’re not. For one Hong Kong nightclub operator, the fall from grace took just two months.

Magnum Entertainment Group Holdings Ltd.2080.HK -8.20%, whose nightclubs boast rhinestone-encrusted toilets, went public just two months ago with one of the hottest Hong Kong IPOs in years. The portion of its US$16 million IPO sold to retail investors—10% of the deal –was 3559.2 times subscribed. That means the company attracted a total of US$5.7 billion from retail investors.

On Tuesday, Magnum warned that it “recorded a substantial decrease in profit” for the 11 months to Feb. 28, 2014. It also said it expects to post a loss  for the year ended March 31, 2014 as increased competition in the clubbing industry weighs on revenue and operating expenses, including property rentals and staff costs, climb.

The profit warning sent Magnum’s shares tumbling like a customer who has had one too many Jagerbombs, which, according to its listing prospectus, is the club’s most popular drink. Shares fell almost 20% Tuesday to HK$1.22 (16 U.S. cents) and are now trading 56% below their IPO price.

Investors shouldn’t be surprised. Magnum noted in its prospectus how its punters could be fickle.

“The Group’s future success depends in part on its ability to anticipate and respond to the changes in consumer preferences and tastes and other factors that affect the clubbing industry. […] It cannot assure you that its offerings will continue to suit the popular tastes and demands of consumers,” Magnum said in its listing prospectus.

Apart from having to stay hot, Magnum has to deal with what most businesses in Hong Kong grapple with: costs. In its prospectus, the company forecasted a worst-case scenario of a 10% increase in staff costs for the year ended March 31, 2013, which would translate to a 2.5 million Hong Kong dollar loss in profit after tax for the year. This accounts for a quarter of the company’s revenue. In 2011, staff costs only represented 11.3% of the group’s revenue.

Property rental expenses accounted for 22.9% of total operating expenses. That’s more than the company’s worst-case scenario of a 15% increase in rental prices, which it said would result in a HK$3.79 million loss in profit after tax for the year.

 

Magnum Rallies as Investors Chase Hong Kong Nightclub IPO

By Fox Hu  Jan 23, 2014 3:00 PM GMT+0800

Magnum Entertainment Group Holdings Ltd. (2080), the first nightclub operator to go public in Hong Kong, more than doubled on its first day of trading.

The stock jumped as high as HK$3.21 from its offer price of HK$1.50, and traded at HK$2.87 at 2:41 p.m. Magnum received orders for 3,559 times the stock available to retail investors in an initial public offering, according to a filing yesterday.

The company operates Beijing Club, Billion Club and Magnum Club in Lan Kwai Fong, a bar area in Hong Kong’s Central district popular with tourists and locals alike. It pulled off one of Hong Kong’s most popular IPOs among individual investors, surpassing the 2,180 times subscription ratio for Milan Station Holdings Ltd.’s May 2011 share sale.

“Among listed companies, Magnum has unique business and impressive profit margins,” said Nelson Yan, a fund manager at Hong Kong-based Special Fine Investment & Management Ltd. “All the three clubs are quite popular in Hong Kong, setting it apart from ordinary caterers.”

Magnum had a gross margin of 81.7 percent and a net profit margin of 16.1 percent in the year ended March 31, according to its IPO prospectus. The company raised $16.3 million in the offering after pricing its shares at the top end of a marketed range, according to data compiled by Bloomberg.

Chairman Yip Mow Lum owns 72 percent of the company after the IPO, the prospectus showed.

In the last 12 months, three companies more than doubled on their trading debuts in Hong Kong after IPOs worth at least $10 million, data compiled by Bloomberg show. RM Group Holdings Ltd., a distributor of health supplements that raised $17.9 million in October, surged 161 percent on its first day of trading.

Anglo Chinese Corporate Finance Ltd. and Bocom International Securities Ltd. managed the Magnum sale, according to the prospectus.

To contact the reporter on this story: Fox Hu in Hong Kong atfhu7@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser atlagerkranser@bloomberg.net

 

Magnum’s oversubscribed IPO latest in string of successful small caps

Thursday, 16 January, 2014, 2:36am

Business›Companies

IPO

Ray Chan ray.utchan@scmp.com

Nightclub operator’s offering is oversubscribed more than 1,200 times, capping a string of successful small cap listings over the past year

The closely-watched initial public offering of local nightclub and disco operator Magnum Entertainment has drawn strong interest from both institutional and retail investors following the runaway success of a slew of small-cap listings since late last year.

Established in 2007, the club operator controlled by local businessman Yip Mow-lum, the chairman of Hong Kong-listed brokerage firm Bright Smart Securities, was swamped with buying orders from investors who used margin funds to increase their purchasing power. This resulted in the IPO being oversubscribed more than 1,200 times, making it one of the biggest oversubscriptions of the past year.

The size of Magnum’s offering is fairly insignificant but the share sale, estimated at between HK$84 million and HK$126 million, could be the first of its kind in Hong Kong’s capital market. It may also draw a lot of interest in its unique business model given soaring rents in Lan Kwai Fong, the city’s popular spot for trendy bars and eateries in Central.

Market participants said a number of fund management firms and billionaire Cheng Yu-tung’s Chow Tai Fook had pledged sizeable orders for the night club listing although there was no official announcement to confirm this.

Shares of two newly listed firms – children’s apparel retailer Miko International and Nanjing Sinolife, a mainland nutritional supplements retailer – surged 23 per cent and 33 per cent respectively in their trading debuts today.

Compared to disappointing mega offerings, small-sized IPOs like afterlife services firm Fu Shou Yan and a number of drug and technology stocks have surprised investors with shares trading well above their offer prices. Shares in Fu Shou Yan are up 44 per cent since listing last month, while China Everbright Bank, the biggest IPO deal for Hong Kong last year, has fallen 6 per cent.

Magnum, which plans to open its fourth club in Central, is offering 75.6 million shares at an indicative price range between HK$1 and HK$1.50 apiece. According to the listing document, the shares will be priced on January 16 and are scheduled to begin trading on January 23.

The firm, which announced a one-off dividend payment of HK$10 million to existing shareholders before listing, said its revenue for the first nine months ended December 2013 was 5.3 per cent below the same period last year, raising questions about its long-term operating condition due to lofty rental costs.

For the 12 months ended March 2013, net profit dropped 4 per cent to HK$28 million from the same period a year earlier, even though revenue grew 27 per cent to HK$174 million for the same period, it said in its listing document. The fall in profit was mainly due to a surge in rental and advertising expenses.

Net operating cash flow fell to HK$21.9 million in March 2013 from HK$31.3 million in the same period a year-before, and further slid to HK$5.4 million in August 2013. Gross margins though stayed above 80 per cent for the past three years, thanks to an increase in liquor prices.

Matthew Kwok, chief strategist at China Yinsheng Wealth Management, expects shares in Magnum to rise sharply on their trading day but urged investors to take profits off the table because newly listed small-cap stocks do not have the fundamental track record to underpin their values.

Analysts said it will be a challenge to judge future prospects and share performance of a nightclub operator, especially after Milan Station, a local second-hand high-end luxury item retailer, announced last month that it discussed a takeover with a third-party buyer shortly after it went public in May 2011.

Shares of Milan Station were also up sharply on its trading debut but have dropped more than 45per cent since listing after it issued several profit warnings.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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