Multidimensional Financial Analysis

1. SPH Acquisition Opportunity - SGCM Analysis 1
The Singapore Press Holding’s Acquisition of SgCarMart.com
Group 9 Amrit RAVI (A0136421) Ambre FISCHER (A0133710)
Daniel LOLLO (A0133497) Rohit BANSAL (A0133000)
Arnaud LEGRIS (A0132978) Timothée LE QUESNE (A0133779)
SgCarMart.com (SGCM)’s Perspective
Business Model
sgCarMart.com is an online portal for car sales. It is today the market leader in automotive-related
needs in Singapore. It offers a long range of products/services through its dedicated website.
The first one is direct second-hand car transactions. Everyone can post an ad to sell his second-hand
car and find a buyer. There are no transaction fees; the seller has to pay only for his ad. Standard ad
costs $48/6wk and Star ad (premium service) costs $96/6wk. It is also possible to sell second-hand
cars to car-dealers. In that case the private seller will have to pay $107 fees for the bidding process.
SGCM also offers to sell second-hand car by consignment to their agents. The agent is then doing all
the selling and bidding process. Private sellers just have to pay a variable percentage of fees,
depending on agent rates.
Besides this, SGCM is also selling items from professional sellers. Many cars from dealers all around
Singapore are proposed on their website. Accessories and retail parts are also sold. The company is
takes a commission on the sales from the professional dealers.
Finally, many automotive-related articles, tools, reviews and forums are also parts of the website. In
this specific case, SGCM is making money with the numerous ads besides its content. This keeps the
customers engaged thus increasing the retention rate and eventually increasing the number of items
sold in other sections.
Business Strategy
With all those different and complementary business models, SGCM now controls more than 90% of
the online car-selling market. Therefore, the current strategy of the firm is not to increase their
market share anymore, but to create differentiation and add value to its services. Here are different
projects SGCM is currently working on:
The migration of its servers from IPV4 capacity to IPV6 capacity is certainly one of its most strategic
projects. The forecasted shortage of IPV4 addresses in a few years has led to the invention of new
kinds of IP addresses: IPV6. As SGCM has to make its website accessible to every user, migration is an
imperative. It is a big challenge but it is a long-term investment, because Southeast Asia and China
have a high rate of IPV6 transition. And as SGCM will certainly be looking at these markets in a few
years, this migration is a priority for the firm.
Partnership with other websites is a priority for the company as well. We can see two recent
examples of this willingness to associate with other e-business websites. The first one is the
partnership with PropertyGuru, the first Singaporean online flat selling and renting platform. The
two websites have decided to share some data together and to do some advertisement for one
another in their newsletters. They both bet on synergy and more users from the partnership. The
market is not the same, but the users are. Another example of this willingness to create
differentiation is the recent investment of SGCM in Conversion Hub Marketing (CHM), a digital
agency. With this partnership, CHM will be able to use SGCM’s user database to improve its
marketing tools, and SGCM will use CHM’s tools to improve user experience and targeting.
Between 2011-2013 SGCM received a $100,000 grant from IE Singapore and another grant from the
Infocomm Development Authority of Singapore of between $30,000 and $100,000. Sales of used cars

2. 2 SPH Acquisition Opportunity - SGCM Analysis
with about one or two years of COE validity left increased by about 70 per cent, compared to
previous year. More people were opting for used cars because of the high COE prices for new
vehicles. This increased demand caused prices for used cars to also rise by about 15 percent.
Future prospects
SGCM has long-term projects too. The firm has shown a high willingness to conquer South East
Asia’s markets. It has done some tests recently in Indonesia, and is looking for an expansion in the
other Asian countries in the next few years. SGCM’s business models are particularly adapted to big
South East Asia cities, which are growing fast and have both a high demand for cars and a rapidly
advancing Internet infrastructure.
3-year Financial Analysis
By analyzing the financial statements of the three previous years, from 2010 to 2012, we had a good
overlook of the financial health of the company. All the numbers are promising and imply a good
growth and a healthy return on investment. (All financial figures are detailed in the Appendix)
From the P&L perspective, their revenues have grown with a CAGR 2010-2012 41%, to reach nearly
$8 million, while capturing nearly the total market in Singapore. Their net margin, reaching 40% in
FY2012 (S$3.2 million), is growing at a slightly slower pace with a CAGR 2010-2012 36.5%. When
considering their EBITDA margin around 50% in the past 3 years, SGCM is doing very well in
managing their costs (staff costs and other operating expenses) and it is expected to continue on this
path in the coming years. The associated companies (SCMC Pte Ltd and Conversion Hub Marketing
Pte Ltd) in which SGCM has invested can be neglected in this analysis regarding of their impact on
SGCM’s figures and the little amount of information we can gather on them.
From the Balance Sheet perspective, trade debtors represent 19% on average of total assets in the
three past years. They grew at a CAGR FY2010-2012 34%, slower than revenue CAGR over the same
period, which is a good sign. Regarding their debt and cash management, SGCM does not have any
debt recorded and has a growing treasury. In FY2012, S$4.9 million cash and equivalents were split
between S$2 million of cash and S$2.9 million of fixed deposits, earning on average 1.06% per annum
and mature within 6 months to 1 year. Cash and fixed deposits accounted for a 72% average of total
assets in the three past years. The Net Current Ratios from FY2010 to FY2012 are 1.26, 1.29 and 1.19
and are acceptable for this young company.
From the Cash Flow perspective, the majority of the cash flows are from operations. Dividends paid
to shareholders represent for FY2010, FY2011 and FY2012 respectively S$840,000, S$1,000,000 and
S$1,860,000. However, the company did not spend any money in R&D, which is rare for an Internet
company. Therefore, it is reasonable to believe that the key shareholders are not keen to further
develop the company.
SGCM Forecasts & DCF Valuation
(All financial figures are detailed in the Appendix)
As they own 90% of Singapore market, there revenues will be soon limited by the market
growth. The action of Monetary Authority of Singapore to limit loans for motor vehicles can have a
direct impact on car sales, thus SGCM’s market. On the other hand, in order to maintain their strong
growth, SGCM plans to enter Southeast Asia as well as Indonesia. The establishment of their
business in new countries is planned for the middle of 2013 and the first revenues from foreign
markets are expected in 2014.
From the revenue perspective, we assume that growth can still continue in 2013 in Singapore
by 45%. The impact of MAS decision will really be felt in 2014 and market growth will slow down. We
estimate the total revenue growth of 2014 and 2015 at around 30%: without the expansion on
foreign markets compensate the growth in Singapore only would have been much lower than 30%. In
order to establish the business in new countries, assets will increase significantly but since cost of life

3. SPH Acquisition Opportunity - SGCM Analysis 3
is lower in Asia and that Singaporean dollar is stronger than major countries we estimate that assets
in 2013 will only increase by 30%. When SGCM will consider expanding their business in other
currencies, they might consider protecting themselves against currency variation but this topic is not
addressed in this forecast. We are encouraging SGCM to continue its investments (fixed deposits)
and maybe find higher interest rates for their investments. We estimated a growth in dividends paid
to shareholders slightly slower than the growth of net profit, in order to enable more investments in
activities of the company.
Valuation is based on the DCF method. Considering that the company has no debt and will
continue to do so, the cost of capital is equal to the cost of equity. We can estimate for the buyer
that the cost of equity can be correlated to an opportunity cost (could have invested in another
company for its portfolio) and get a 15% return. In addition, we estimated a 3% infinite growth rate
for the terminal value of cash flows. It gives a multiple close to 10 between FY2015E cash flow and
the DCF terminal value. Therefore, the estimated enterprise value reaches S$ 51.9 million. Adding
the cash and equivalents of S$ 4.9 million at FY2012, the equity value of SGCM is raised to S$ 56.8
million.
IPO opportunity
An IPO can not only provide a company with access to capital to fuel growth and liquidity for
founders and investors, but it provides the public market's unofficial stamp of approval. The capital
raised through a successful public offering boosts a business' ability to expand into new markets or
grow through acquisitions. It can help a company attract new talent with stock options and other
equity awards and reward initial investors with good profits and dividends. Following are some of
the pros and cons for a private company which intends to go for the IPO in the near future.
Why they should Why they shouldn’t
 Access to more Capital
 Unlocking Shareholder’s Value
 Better Liquidity & Brand image.
 Helpful while Mergers & Acquisition
 Loss of confidentiality and control
 Added restructuring Costs
 Possibility of loosing fous on Business
 Reporting & Creditable Responsibilities
As per rule 210 of SGX Mainboard Listings Manual a company applying for listing of its equity
securities on the SGX Mainboard must have a cumulative consolidated pre-tax profit of at least S$ 7.5
million for the last three years, and a minimum pre-tax profit of $1 million for each of those three
years. This was revised in September 26, 2013 that it required minimum consolidated pre-tax profit
(based on full year consolidated audited accounts) of at least S$30 million for the latest financial
year and an operating track record of at least three years.
The deal was announced on 1st April 2013 and it was the former rule that had existed at that time.
Going through the financials of SGCM of 2011 and 2012 we calculated that the cumulative pre-tax
profit for 3 years period 2010-2012 for SGCM was S$ 8.38 million hence it qualified to file an IPO. But
if we refer to the changes made in rule 210 over the past few years we realize that SGX keeps
revising these limits to ensure that only potentially stable firms make it to SGX. This limit was not
revised for past 3 years hence SGCM must have expected that this limit could be revised in 2013-
2014 and by the time they are prepared to file an IPO they might not be eligible anymore. As we can
see, in September of 2013 this limit was indeed revised from $7.5 Million to $30 Million. As can be
seen from our projections even if the company maintains its high growth trajectory it is highly
unlikely they could have filed for an IPO even in next 5-7 years. Moreover, preparing to file an IPO
would require them to set up a more functional accounts and legal department to take care of the
regulatory requirements. It would also require SGCM to be more open to investors about their

4. 4 SPH Acquisition Opportunity - SGCM Analysis
future growth plans and they plan to use their cash. All these activities would have incurred
substantial expenses and might in some way even benefit the competitors. As such we believe that
going for an IPO would not have been the best option for SGCM. Considering the buy-out price that
they were offered, it made more sense - financially and for the growth of the business - to be
acquired by SPH.
Criteria Analysis
Income
Cumulative consolidated pre-tax profit of at least S$7.5 million for
the last 3 years, with a pre-tax profit of at least S$1 million in each
of those 3 years.
Satisfied
(As described above)
Financial
position and
liquidity
Healthy financial position with positive cash flow operating
activities. All debts owing by directors, substantial shareholders
and companies controlled by directors and substantial
shareholders must be settled except subsidiaries and associated
companies of the issuer.
Satisfied.
The company has healthy
finances, positive cash flow,
and no debts
Directors and
management
 Directors and executive officers should have appropriate
experience and expertise to manage the group's business.
 The character and integrity of the directors, management and
controlling shareholders of the issuer will be a relevant factor
for consideration
 At least 2 non-executive directors who are independent and free
of any material business or financial connection with the issuer
 A foreign issuer must have at least two independent directors,
resident in Singapore
 Audit committee is required
Information is insufficient
but from our analysis we
conclude this was not a
hurdle for them.
(Source: Refer Reference 1 for details of rule 210 of SGX Mainboard Listings)
Besides, as SGCM’s market capitalisation is likely to be less than $300 million, 25% of the enlarged
share capital must be traded publicly. Once listed, they would also face 6 months moratorium to sell.
Conclusion and Recommendations
 Getting acquired by SPH makes sense to the founders of SGCM as a valuation of 11 times
sales or 25 times PE is very good. The shareholding pattern of SGCM at the time of incorporation
depicted that the founders were not fully incentivised as the corporate investor JDB owned a larger
share for a low investment of $800,000. Our valuation of SGCM gave us an equity value of S$56.8 M
thus the bought out price of S$ 60 M was a good deal for SGCM.
 If acquired by SPH, this will give SGCM a better outreach in newer markets, as SPH is a well-
established international corporation with a global presence. SGCM may be able to use SPH’s
strategic alliances and its brand value while diversifying into other markets specially emerging
economies.
 Due to the restriction imposed by the MAS on the car loan market, SGCM stands to lose a
major chunk of its business in the market and thus may increase market uncertainity.
 IPO, in our opinion, is too ambitious an option for SGCM at that point. If SGCM is acquired, it
has a better chance to go IPO under the guidance of SPH.
 We believe that with SGCM’s established car market competency and SPH’s brand value and
financial backing it would be a Win-Win situation perceived by the market for both the companies.

5. SPH Acquisition Opportunity - SGCM Analysis 5
Appendix
Financial Information (S$’000)
ASSETS
FY
2010
FY
2011
FY
2012
FY
2013E
FY
2014E
FY
2015E
LIABILITIES &
EQUITY
FY
2010
FY
2011
FY
2012
FY
2013E
FY
2014E
FY
2015E
Net Fix Assets 144 300 265 348 287 210 Share Capital 860 860 860 860 860 860
Net Int. Assets 70 64 58 47 30 1 Retained Profit 2,039 3,306 4,629 7,495 11,124 17,190
Associated
Company
0 91 248 272 300 330
Minority
Interest
44 109 125 137 151 166
Trade Debtors 697 936 1,254 1,667 2,217 2,949 Total Equity 2,943 4,275 5,614 8,493 12,135 18,216
Others
Debtors
35 44 132 172 224 291 Trade creditors 0 1 23 10 10 10
Fixed Deposits 1,203 1,309 2,920 4,088 5,723 8,012
Unearned
revenue
47 48 58 61 64 67
Cash 1,392 2,331 1,954 3,613 5,532 9,397 Other creditors 221 380 587 821 1,068 1,388
Current Assets 3,327 4,620 6,260 9,540 13,696 20,649
Provision for
taxation
311 328 501 740 931 1,358
Deferred
Taxation
-19 -42 -40 -82 -103 -151
Current
Liabilities
579 758 1,168 1,632 2,073 2,823
Total Assets 3,522 5,033 6,791 10,124 14,208 21,038 Total L & E 3,522 5,033 6,782 10,124 14,208 21,038
Income
Statement
FY
2010
FY
2011
FY
2012
FY
2013E
FY
2014E
FY
2015E
Cash Flow
Statement
FY
2010
FY
2011
FY
2012
FY
2013E
FY
2014E
FY
2015E
Total Revenue 4,006 5,567 7,953 11,532 14,992 20,239 Profit Bef. Tax 1,991 2,646 3,744 6,088 7,663 11,173
Staff costs -1,309 -1,967 -2,709 -3,386 -4,740 -5,689 Adjust. on PBT 107 118 236 224 203 158
Depreciation -78 -101 -162 -118 -148 -172 Changes Net WC -110 -78 -20 10 -161 -49
Amortization -6 -6 -6 -6 -6 -6 Taxes Paid -70 -274 -375 -545 -822 -1,035
Dep & Amrt -83 -107 -168 -124 -153 -178
Cash From Op.
Activities
1,918 2,412 3,584 5,777 6,884 10,248
Other Op. Exp. -622 -839 -1,265 -1,834 -2,384 -3,219 Interest Rec. 4 6 11 45 63 88
Share of loss
of ass. comp.
0 -9 -68 -100 -50 20
Investment in
ass. comp.
0 -100 -224 0 0 0
Total Costs
and Expenses
-2,015 -2,921 -4,209 -5,444 -7,328 -9,065 CAPEX -51 -256 -114 -200 -87 -96
Profit Bef. Tax 1,991 2,646 3,744 6,088 7,663 11,173
Cash from
Invest. Activities
-47 -350 -327 -156 -24 -7
Income Tax -273 -314 -545 -822 -1,035 -1,508 Dividends paid -840 -1,000 -1,860 -2,400 -3,000 -3,600
Net Profit 1,718 2,332 3,199 5,266 6,629 9,665 Total Cash Flow 1,032 1,062 1,397 3,222 3,860 6,640
Financial Analysis
RATIOS
FY
2010
FY
2011
FY
2012
FY
2013E
FY
2014E
FY
2015E
DCF Valuation (S$ ‘000) FY 2013E FY 2014E FY 2015E
EBITDA Margin 52% 49% 49% 54% 52% 56% Net Cash Flow 3,222 3,860 6,640
Profit Bef. Tax 50% 48% 47% 53% 51% 55% Terminal Cash Flow Value 63,638
Net Margin 43% 42% 40% 46% 44% 48% NPV of Cash Flow 51,929
Trade
Debtors/Assets
20% 19% 18% 16% 16% 14% Enterprise Value
51,929
Cash and equ.
/Assets
74% 72% 72% 76% 79% 83% Cash and equivalents
4,874
Liabilities/Equity 20% 18% 21% 19% 17% 15% Equity Value 56,803
Net Current
Ratio
1.26 1.29 1.19 1.13 1.18 1.15
WACC
Infinite Growth of Cash Flows
15%
3%
Growth
FY
2011
FY
2012
CAGR
2010-2012
FY
2013E
FY
2014E
FY
2015E
Revenue 39% 43% 41% 45% 30% 35%
EBITDA 33% 42% 37% 59% 26% 45%
Net Profit 36% 37% 36% 65% 26% 46%
Trade Debtors 34% 34% 34% 33% 33% 33%

6. 6 SPH Acquisition Opportunity - SGCM Analysis
References
1. http://rulebook.sgx.com/en/display/display_main.html?rbid=3271&element_id=4870
2. http://www.pwccn.com/home/eng/ipo_cmsg_singapore_se.html
3. http://www.guidemesingapore.com/doing-business/finances/singapore-company-
going-public-considerations
4. http://www.rodyk.com/usermedia/documents/Rodyk_ReporterJun13%20-
%20Business%20Bulletin3.pdf