Automotive firm to push through HK$264m IPO
A small automotive firm is hoping to succeed where a high-profile London jeweller failed last week by pushing ahead with a share offering amid a market downturn.
Its global bookrunner says it will keep pricing on the low side to attract investors.
Guotai Junan, the sole global co-ordinator for Xiezhong International, an automotive heating and cooling system supplier on the mainland, said the firm may well succeed where three others have failed in the past two weeks alone.
That's because Xiezhong's valuation is about 60 per cent lower than its mainland peers, says Guotai Junan.
'Xiezhong is valued at between seven and 10 times projected earnings, while most mainland companies of the same nature are trading at between 15 and 20 times,' said Donny Wong, Guotai Junan's corporate finance director.
However, Wong dismissed suggestions that Xiezhong was desperate to raise funds, saying firms tended to be valued more highly on the mainland than in Hong Kong. That meant they tended to trade at a premium on the mainland, he said.
Mainland investors are expected to buy most of Xiezhong's initial share offering (IPO).
The firm, which is pricing its shares at between 93 HK cents and HK$1.32 apiece, is seeking to raise as much as HK$264 million to double its production capacity over the next three years.
The planned IPO of China Yongda Automobile Services, a car dealer, was said to have been fully subscribed, but it subsequently shelved its HK$3.37 billion listing after some investors cancelled their orders due to declines in the Hang Seng Index.
China Nonferrous Mining and Graff Diamonds (whose US$1 billion IPO would have been Hong Kong's biggest to date this year) also withdrew their planned listings.
Analysts said earlier that the share valuations of both firms were too high compared with their peers.
In 2010, Xiezhong's net profit more than doubled to 79.4 million yuan (HK$97 million) from 2009. It posted net earnings of 86.1 million yuan last year.
Although truck sales on the mainland fell 7.71 per cent in the first four months of this year, Ge Hongbing, Xiezhong's executive deputy general manager, said there remained ample room for business growth, as the nation's growing affluence would boost demand for heavy trucks with air conditioning.
Such trucks presently comprise roughly 50 per cent of the market.
Xiezhong plans to use most of the IPO proceeds to expand its existing plants and build two more factories in Beijing and Nanjing, which will cost about 225 million yuan.
The firm's accounts receivable - the money its clients owe the firm - have also nearly doubled to 381 million yuan last year over the past three years. It blames Beijing's monetary tightening policy for constricting their clients' cash flow.
Xiezhong's share offering starts today and ends on Monday.
Its shares are expected to commence trade on June 18.
The number of days it takes Xiezhong to recover payments from its clients, which remains within the industry standard