Cassava is a starchy tropical crop found in Southeast Asia. The firm sources dried cassava chips from Thailand and exports them to companies on the mainland. There they are processed to make consumable alcohol and ethanol, a renewable substitute for petrol.

In 2005, Thailand accounted for 60 per cent of the world's dried cassava exports, while China was the largest importing nation of dried cassava, according to the listing prospectus. Asia Cassava is the biggest supplier of dried cassava chips from Thailand to the mainland, accounting for 23.4 per cent of this trade in 2007. However, it competes with 30 importers of dried cassava chips on the mainland. One risk factor stated in the prospectus is that Asia Cassava sells only one product, dried cassava chips, and a decrease in demand or availability of substitutes would hurt the company's business.

The average selling price of dried cassava chips fell from HK$1,629 per tonne in August 2008 to HK$1,079 in December 2008. 'The second half of 2008 saw the financial tsunami and the decline in prices of crude oil and denatured fuel ethanol,' said the prospectus. 'It is not unlikely that the selling prices of dried cassava chips will continue to be subject to turbulent fluctuation. With a deteriorating global economy, general business may continue to slow down. Therefore, demand for dried cassava chips in China may have decreased, which may have an impact on the company's business.'

Other stated risk factors are Asia Cassava's five largest customers on the mainland accounted for 76 per cent of its revenue during the five months to August 2008. Moreover, 58.9 per cent of its purchase of dried cassava chips came from its five largest suppliers.

'That proportion is too high,' said Raymond So Wai-man, associate professor of finance at the Chinese University of Hong Kong. 'The company has weak bargaining power with suppliers and customers. If suppliers raise prices, the company can't say no. If buyers ask for discount, the company can't say no.'

Another risk factor is virtually all of Asia Cassava's supplies of cassava come from Thailand, although it intends to source from Laos and Cambodia. 'The company is vulnerable to adverse changes in the political, economic and social conditions in Thailand,' Asia Cassava admitted.

With a net profit of HK$101.86 million and revenue of HK$903.56 million last year, Asia Cassava's net profit margin was 11.3 per cent.

'The largest margins are in cultivation and production, not trading,' said Peter Sjovall, chief financial officer of Asian Bamboo, a Frankfurt-listed company that leases bamboo plantations in Fujian province. 'The gross margins for plantation companies can be above 50 per cent.'

Since part of Asia Cassava's products were used for ethanol, a renewable energy form, the firm would benefit from the Chinese and US governments' policy to encourage the use of renewable energy, said Mr Tang.

What the analysts say

Raymond So Wai-man, associate professor of finance, Chinese University of Hong Kong Cons: Given the poor market condition, there are doubts over whether the company's share offer will be well received by the public

Peter Sjovall, chief financial officer, Asian Bamboo Pros: Demand for agricultural products is relatively stable. Even if the economy weakens, the impact on the demand for these products is relatively small

Kenny Tang Sing-hing, head of research, Redford Securities Pros: After Barack Obama took office [in January], the market thinks the US government will encourage the use of renewable energy. The company's products are mainly used for ethanol, a renewable energy substitute for petrol