Singapore’s largest preschool operator, MindChamps has lodged its prospectus for IPO on the mainboard of SGX.

It is offering 30,449,600 shares comprising mainly placement shares and only about 2,000,000 available for public offer at $0.83 per share.

The IPO is now open and will close on 22nd November, 12pm and begin trading on the mainboard on 24th November.

Business model

biz modelSource: Business Model, MindChamps

MindChamps’ business consists of three main segments which are education, preschool and others. Predominantly, education and franchise are the main income generator of the company.

MindChamps has developed its own curriculum known as the “Champion Mindset” which is their differentiation from its peers.

It has a proven track record of operations in Singapore, Australia, UAE and Philippines.

The success of its franchising model has allowed MindChamps to grow exponentially throughout the years and access to new markets.

Rather than just selling the licence for a flat fee, the company fixes the fees based on a percentage of the franchisees’ revenue.

This will allow them to gain access to high growth markets without committing a large amount of capital.

MindChamps plans to use the proceed from the IPO to repay acquisition loan and to fund future expansion plans.

Financial performance

financial highlightsSource: Financial Highlights, MindChamps

Based on the financial performance of MindChamps in the past three years, the company saw stable growth.

As can be seen in the graph above, revenue has grown at a Compounded Annual Growth Rate (CAGR) of 30.7% while net profit has grown at a CAGR of 42.7%.

acquisitionSource: List of Planned Acquisitions, MindChamps

The company has prepared a pro-forma earnings based on the acquisitions that it will make post-IPO. It will increase the adjusted earnings per share (EPS) from $0.0223 to $0.0258.

Based on the EPS of $0.0258, it will imply that MindChamps’ IPO is priced at 32 times price-earnings ratio (PE).

Concluding thoughts

I like MindChamps for its business model and its fast expansion through franchise model which is less capital intensive.

In addition, they are able to participate in the upside of the franchisees as their fees are pegged to the revenue.

It has plans to expand in Singapore, Australia, China, United States, United Kingdom, New Zealand, Malaysia, South Korea and Vietnam.

If the plans are successful, MindChamps is expected to see its revenue increase exponentially.

The IPO is well received by cornerstone investors and counts several notable institutions among its subscribers.

China First Capital Group, Hillhouse Capital Group, Target Asset Management and SPH are the main cornerstone investors for MindChamps.

My key concern for this IPO is that it is trading at a high valuation of 32 times PE. The reason that it is raising the funds at such a high valuation is due to the projected overseas expansion through its franchise model.

China First Capital Group is the planned franchisee for Hong Kong and China and is expected to contribute its master franchise fee to MindChamps’ revenue in 2018.

Hence, there is a huge execution risk for MindChamps and will be adversely affected should there be any hiccups in the expansion.

Nevertheless, I am optimistic about the education sectors in and its long-term prospect.

In overall, investors looking to invest into MindChamps should be in to participate in the company’s long-term growth potential rather than an upside during the first day of trading.

Read the full prospectus here

Disclaimer: The author has vested interest in MindChamps IPO. Everything expressed in this article is only based on his opinion and should not be construed as a buy or sell recommendation.