OREANDA-NEWS. Public reprimand: breach of Listing Rules

1. Singapore Exchange (SGX) refers to the letter dated 3 June 2015 issued by SGX to YuuZoo Corporation Limited (“YuuZoo”) on the misuse of SGXNet (the “Letter”). Further to the Letter, SGX reprimands YuuZoo for breach of Listing Rule 703(4), read with Paragraph 25(c) of Appendix 7.1, which requires a company’s announcement to be balanced and fair, and to avoid among other things:-

(a) presentation of favourable possibilities as certain, or as more probable than is actually the case; and

(b) presentation of projections without sufficient qualification or without sufficient factual basis.

Background of events leading to public reprimand

2. The company made an SGXNet announcement after the market closed on 21 May 2015 entitled, “New Edison Investment Research report on YuuZoo sees significant upside on share price”. The announcement contained two attachments, namely a copy of the research report produced by Edison Investment Research Limited (“Edison”) and a news release from YuuZoo. The news release carried the headline, “New Edison Investment Research report on YuuZoo sees significant upside on share price, puts fair value at up to 1.83S$ in view of new signed agreements.” YuuZoo’s share price was trading in the range of 21.5 cents to 23.5 cents on 21 May 2015, the period immediately before the release of the SGXNet announcement.

3. The description on the SGXNet announcement page and the title of YuuZoo’s news release highlighted that Edison had put a fair value of up to S$1.83 on YuuZoo’s share price. S$1.83 was the most optimistic valuation from a range of fair values contained in the Edison report.

4. The news release presented 4 discounted cashflow (DCF) scenarios supporting a fair value for YuuZoo’s share at 35 cents in the slow growth scenario, 81 cents in the mid-case scenario, and S$1.25 in the rapid growth scenario based on a WACC (weighted average cost of capital) assumption of 12.5%, and at S$1.83 in the rapid growth scenario based on a lower WACC of 10%.

5. The company did not consult Macquarie Capital (Singapore) Pte. Limited, its then compliance adviser, on the release of the SGXNet announcement.

6. The Edison report contained earnings and cashflow projections, and the share price valuations were derived from these projections.  The report stated that given that the company was in the early stage of its B2C initiatives with a focus on emerging markets, a WACC of 12.5% was assumed for the scenario analysis. Edison expected the WACC to come down as YuuZoo’s business matured. A table of DCF scenarios for share price valuations under different cost of equity at 10%, 11%, 12.5% and 15% was presented in the Edison report as follows:-

 

DCF scenarios flexed for cost of equity (SGD per share)

WACC

Slow evolution

Mid-case

Faster evolution

10.0%

51

118

183

11.0%

44

101

156

12.5%

35

81

125

15.0%

26

60

92


7. On 1 June 2015, the company announced that the content, projections and statements in the Edison report solely reflected the views of Edison, and the company had not shared any information with Edison that the company had not previously shared with the public.

8. Following the 21 May SGXNet announcement and news release, YuuZoo’s share price rose on the two consecutive trading days following the release of the SGXNet announcement to close at 29.5 cents on 22 May 2015 and 33.5 cents on 25 May 2015 with heavy volumes traded.  On 21 May 2015, prior to the announcement and news release, YuuZoo shares traded in a 21.5 cent to 23.5 cent range.