Neo-Neon expects 82pc profit surge
Neo-Neon Holdings, a world leader in decorative lighting which this week begins pre-marketing of its up to US$300 million initial public offering, expects its 2006 profit to surge 82 per cent because of the sale of more high-margin products and cost cutting, according to one of its sponsors.
Neo-Neon plans to list shares on the Hong Kong stock exchange next month, market sources said.
ICEA and Deutsche Bank are the listing sponsors while BNP Paribas is one of the arrangers.
'Neo-Neon's margins have improved significantly in 2005 owing to the company's increasing economies of scales and the rising proportion of higher-margin LED (light emitting diode) product sales,' wrote BNP in a report.
LED lighting products have profit margins of more than 50 per cent, compared with 30 per cent for traditional incandescent lighting products.
The company boosted the proportion of LED products to 31 per cent of total sales in the first half of this year, from 2.7 per cent in 2003. BNP said LED products' share of sales should reach 58 per cent in 2008.
Revenue contribution from incandescent lighting will drop to 18 per cent of the total in 2008 from 38 per cent this year, it added.
BNP estimates the company's profit will be HK$259 million this year, up 82 per cent from HK$143 million a year ago, with turnover rising 47 per cent to HK$1.42 billion from HK$971 million previously.
The firm distributed 46 per cent of its earnings as dividends last year, leaving about HK$186 million net cash balance at the end of the year. It proposes to maintain the same dividend payout ratio this year but slash the ratio to 25 per cent next year and in 2008, BNP said.
With increasing urbanisation and rising household purchasing power, China is in line to become the third-largest market for Neo-Neon, behind the United States and Europe. BNP estimated sales from China would jump to around 20 per cent of the firm's turnover in 2008 from 7 per cent in 2005.
As Neo-Neon produces most decorative lighting product components, BNP estimates production costs may be 50 per cent to 60 per cent lower than those of its peers.
