Commercial niche may be worth a small bet

Wuzhou International's low price-earnings ratio makes offering an attractive bet, analysts say, as the firm sticks to commercial developments

PUBLISHED : Saturday, 01 June, 2013, 12:00am
UPDATED : Saturday, 01 June, 2013, 4:19am

What distinguishes the listing candidate Wuzhou International Holdings from other Hong Kong-traded mainland developers?

While many mainland players primarily focus on residential property developments, Wuzhou International builds and operates wholesale markets and commercial complexes in industrial cities, mainly in the Yangtze river delta area.

It then sells and leases out space to investors and companies involved in making industrial hardware, construction materials, furniture, household goods, vehicle parts and so on.

It also leases and sells spaces in the commercial complexes to provide supermarkets, department stores, restaurants and offices.

Kenny Tang Sing-hing, general manager of AMTD Financial Planning, said: "It is a hybrid of China South City Holdings and Powerlong Real Estate Holdings."

Wuzhou International's focus on commercial property is its niche, given that the central government has implemented a series of measures in a determination to cool the residential market in the past few years, Tang said.

However, Tang said, the attractiveness of the company is its low price-earnings ratio, a measure of a company's share price relative to its expected earnings, which acts as a guide to the likely returns an investor can expect to see.

"Its PE ratio is just about four times, against a PE ratio of six times at China South City," Tang said.

Taking into account its small size, the offering will be fully subscribed, he said.

The share price is to be set at a range of between HK$1.15 and HK$1.50 a share. The final price will be determined on June 5. A total of 1.14 billion shares will be issued, of which just over one billion will be for international placing and the remaining 114 million shares for the Hong Kong public offer.

Assuming the over-allotment option is not exercised and the offer price is set at the upper end of the pricing range, the company will raise up to HK$1.71 billion.

Simon Lam Ka-hang, a research director at Christfund Securities, said: "It may be worth it to make a bet in the short term, with the low selling price."

The public offering began yesterday and will close on June 5. Trading will begin on June 13. Wuzhou was established in December 2004, with its first development the Wuxi Wuzhou International Industrial Exhibition City. It grew rapidly, and by the end of February this year the group had a total of 11 wholesale centres and 14 commercial complexes, with a total planned gross floor area of about 7.3 million square metres, in six rapidly developing provinces across the country, namely Jiangsu, Zhejiang, Shandong, Yunnan, Hubei and Chongqing.

Revenue, gross profit and net profit increased at a compound annual growth rate of 60.4 per cent, 75.5 per cent and 56.7 per cent respectively from 2010 to 2012. Net profit in the year to December last year amounted to 699.7 million yuan (HK$877 million).

As the company expanded rapidly, its gearing ratio (the ratio of loans to capital) increased significantly, from 97.7 per cent in 2011 to 145.9 per cent last year. Its total outstanding bank loans and other borrowings amounted to about 2.65 billion yuan as of March 31.

Its loans from trust institutions came to 627.8 million yuan.

About 60 per cent of the proceeds of the float will be used to finance land acquisition, construction and development of those of the group's projects with memorandums of understanding already signed, another 30 per cent will be used for other projects and the final 10 per cent used for working capital.