Prime Skyline Limited Prepares US$15M IPO (Pending: PSE)

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A quick look at Prime Skyline Limited

Prime Skyline Limited (PSE) has applied to raise $15 million in an initial public offering of its common stock, according to an F-1 registration statement.

The company provides the building envelope Design, consulting and construction services in various Asian countries.

With PSE’s top-line earnings shrinking in a growing industry, I’m awaiting Prime Skyline’s IPO, although the IPO’s low notional price could attract day traders looking for volatility.

Estimated IPO Price Date: To be announced.

What is Prime Skyline?

Singapore-based Prime Skyline was established to assist developers in the design and construction of the envelope of residential and commercial buildings.

Management is led by Co-Founder, Chairman and CEO Sonny Bensily, who has been with the company since its inception in 1995 and was previously a civil engineer at WED Engineers & Constructors and New York Plastic Company Pte.

The company’s main offerings include:

• advisory

• draft

• construction

• Deliver

• maintenance

The company currently offers its services in Singapore, Sri Lanka, Myanmar, the Philippines and Brunei and is looking to expand its operations to other Asian countries.

As of December 31, 2021, Prime Skyline has booked a fair value investment of $2.2 million as of December 31, 2021 from investors including Focus Point Developments Limited.

The basics of Prime Skyline

The Company is pursuing project bidding opportunities with commercial and government customers.

The building envelope industry in Singapore is relatively concentrated with only a few dominant players.

In 2019, management said the company was ranked as the fourth largest such contractor in the region.

Selling and marketing expenses as a percentage of total revenue have increased 0.4x as revenue has declined as shown in the following figures:

Sales & Marketing	Expenses vs. Income
Period	percentage
2021	0.4%
2020	0.3%

click to enlarge

(Source – SEC)

The sales and marketing efficiency multiple, defined as how many dollars in incremental new revenue generated by each dollar spent in sales and marketing, was negative (24.5x) for the most recent reporting period. (Source – SEC)

According to a 2022 market research report by Market Reports World, the global market for building envelope products and services was estimated at US$158 billion in 2021 and is projected to reach US$202.5 billion by 2028.

This equates to a projected CAGR of 3.6% from 2022 to 2028.

The main drivers for this expected growth are an increasing demand for improved building envelope solutions for more energy efficiency.

Also, the Asia-Pacific region is expected to have one of the fastest growth rates for demand in the coming years.

Key contestants or other industry participants include:

• Nam Lee Pressed Metal Pte. GmbH.

• LHL International Pte. GmbH.

• Mero Asia Pacific Pte. GmbH.

• YKK ` Singapore Pte. GmbH.

Financial performance of Prime Skyline

The company’s recent financial results can be summarized as follows:

• Contracting top line revenue

• Decreased gross profit and gross margin

• Increase in operating profit

• Reduced cash flow from operations

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
2021	$24,738,132	-8.2%
2020	$26,944,424
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
2021	$3,203,882	-21.9%
2020	$4,100,604
gross margin
Period	gross margin
2021	12.95%
2020	15.22%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
2021	$667,454	2.7%
2020	$272,534	1.0%
net income (loss)
Period	net income (loss)	net margin
2021	$74,954	0.3%
2020	$ (137,379)	-0.6%
Cash flow from operations
Period	Cash flow from operations
2021	$14,083,492
2020	$15,077,505
(Glossary of terms)

click to enlarge

As of December 31, 2021, Prime Skyline had $52,915 in cash and $33.6 million in total debt.

Free cash flow for the twelve months ended December 31, 2021 was $13.9 million as a result of a sharp increase in debt.

Prime Skyline IPO details

Prime Skyline intends to raise $15 million in gross proceeds from an initial public offering of its common shares and is offering 3.75 million shares at a proposed mid-price of $4.00 per share.

No existing shareholder has expressed an interest in buying shares at the IPO price.

Assuming a successful IPO, the Company’s enterprise value at IPO would be approximately $60.4 million, excluding the impact of underwriters’ over-allotment options.

The ratio of free float to outstanding shares (excluding over-allotments by underwriters) will be approximately 30.0%. A number below 10% is generally considered a “low float” stock, which can experience significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

for paying the start-up expenses of potential projects, which generally include project insurance fees, material costs, subcontracting fees and survey services fees for certain start-up work to accelerate our organic growth and expand our business scope by undertaking major building transhipment projects in Singapore and other Asian countries such as the Philippines and Sri Lanka.

for the payment of cash collateral for performance bonds for potential projects.

for the partial repayment of a S$1 million five-year bank loan due June 2025 and a S$5 million five-year bridge loan from the same bank due January 2026 .

to purchase servers, computers, software and other supplies to improve our BIM design skills and upgrade our IT equipment and systems.

to repay our controlling shareholder for an interest-free loan granted to us to pay the costs of this offering and listing on the Nasdaq.

for working capital and other general corporate purposes.

(Source – SEC)

Management’s presentation of the company’s roadshow is not available.

Regarding pending lawsuits, management said it was not aware of any material lawsuits against the company.

The sole public bookrunner for the IPO is ViewTrade Securities.

Valuation metrics for Prime Skyline

Below is a table of relevant cap and valuation numbers for the company:

Measure [TTM]	Crowd
Market capitalization at IPO	$50,000,000
Enterprise value	$60,359,730
price / sale	2.02
EV / Revenue	2.44
EV / EBITDA	90.43
earnings per share	$0.01
operating margin	2.70%
net margin	0.30%
Ratio of float to shares outstanding	30.00%
Proposed IPO midpoint price per share	$4.00
Net Free Cash Flow	$13,914,701
Free cash flow yield per share	27.83%
Debt / EBITDA multiple	31.33
investment rate	83.44
sales growth rate	-8.19%
(Glossary of terms)

click to enlarge

(Source – SEC)

Commentary on Prime Skyline’s IPO

PSE is seeking public capital market investment in the United States to service debt, fund its corporate growth initiatives, new project bid opportunities and geographic expansion.

The company’s financials have resulted in lower revenue, gross profit and gross margin, increasing operating profit but lower cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021 was $13.9 million due to a sharp increase in trade payables.

Selling and marketing expenses as a percentage of total sales increased as sales declined; its sales and marketing efficiency multiple was negative (24.5x) over the last reporting period.

The company currently plans not to pay any dividends and intends to reinvest future profits into the company’s growth initiatives.

The market opportunity for the provision of building envelope construction services is quite large but is expected to grow at a moderate CAGR of 3.6% in the coming years.

ViewTrade Securities is the sole underwriter and IPOs led by the firm over the past 12 months have generated an average negative return (66.0%) since its listing. This is a lowest performance for any major underwriter over the period.

The main risk to the company’s prospects is the rising cost of capital and the global slowdown, which can delay projects while increasing the cost of doing business.

Additionally, US investors would only own part of a Cayman Islands registered company and would not directly own shares in the operating subsidiaries. The Company may be subject to country-specific restrictions on capital movements and dividends.

As for valuation, management is asking investors to pay a 2.4x EV/sales multiple for a company that is posting negative sales growth.

Given the company’s shrinking top-line earnings in a growing industry, I’m awaiting Prime Skyline’s IPO, although the IPO’s low notional price could attract day traders looking for volatility.