Robust demand seen for shares of Huishan Dairy
Strong debut expected for vertically integrated firm's IPO, city's second-largest this year
China Huishan Dairy looks set to raise all or almost all of the HK$10.1 billion it is seeking in its initial public offering, giving it muscle to build on a strong position in an industry that is expected to see explosive growth but also much consolidation.
The offering, the second-biggest in Hong Kong this year, was covered "multiple times" with demand from hedge funds, sovereign wealth funds and other asset managers, sources said.
The shares were priced at HK$2.67 each, the top of a marketing range of HK$2.28 to $2.67, a source said.
In a sector bedevilled by food safety scandals, investors are drawn to Huishan's position as the country's largest integrated dairy firm, with control over grass planting, dairy processing and product development - giving it more oversight on quality.
Demand from retail investors had also been good given the large size of the offering, boding well for the stock's debut on September 27, said Jasper Chan, a corporate finance officer at Phillip Securities, which offers margin loans for small investors looking to buy into the stock.
Of Huishan's global offering of 3.78 billion shares, 10 per cent was earmarked for Hong Kong.
"The price will go up, because this is the only company in China that does everything in the milk industry," Chan said.
"Normally, people are concerned about the safety of the product, but this one, they do the whole thing, easing those concerns."
Sales of dairy products on the mainland are worth about US$45 billion a year and expected to grow rapidly to US$89 billion by 2017, according to a Frost & Sullivan report prepared for Huishan.
The mainland's per capita dairy consumption rate is less than half that of its Asian neighbours, according to Macquarie.
But the industry is also highly fragmented. Although Huishan owns the country's second-largest herd of dairy cows and fields of alfafa for hay that are as large as Hong Kong Island, it represents only a fraction of the mainland's total market.
The top five dairy farming firms account for just 2.4 per cent of the 18.3 million cows on the mainland.
However, government pressure for the industry to consolidate is set to change all that.
Beijing wants the number of domestic infant formula producers to fall to 50 by 2018 from about 200 now.
It expects the top 10 local firms to account then for 80 per cent of the domestic market.