CHINA Bicycles Company is the biggest listed B-share company on the Shenzhen Stock Exchange, with a market capitalisation of $1.21 billion, twice the size of the next biggest, Tsann Kuen, and representing 23 per cent of the value of all 18 listed stocks.
China Bicycles' B-shares look very attractive now, having come out from under the cloud of the collapse of its United States distributor and major shareholder, Schwinn, in 1992.
Part of Schwinn's stake in China Bicycles was used to offset outstanding debts and has now all been firmly placed out by the company to institutional investors at between $7.60 and $8.05 per B-share by Standard Chartered Securities.
The clearing of this stock overhang coincided with the beginning of a long overdue recovery in B-share prices. The stock has recovered to $9.80, and the company now plans a three-for-10 bonus issue and a modest one-for-five rights issue.
At the current price, China Bicycles B-shares trade at 12 times this year's anticipated earnings per share and only 9.6 times next year's. This is an inexpensive rating for an export company giving 51 per cent this year and 25 per cent in 1994.
China Bicycles is not a low-end producer; it concentrates on relatively expensive items, such as mountain bikes, primarily for export to North America and Europe. The company does, however, plan to extend its domestic sales force where it sees great long-term potential.
It already has 16 distribution points across the country. The flotation later this year of Shanghai Phoenix Bicycle will probably show off the comparative advantages of China Bicycles' much newer production facilities, to the benefit of its share price.
China Bicycles is moving further up-market with its new factory in Longhua where it will produce cycles made from carbon fibre. Once operating at full capacity, the company can wheel out over 2.5 million bicycles a year.
To widen its following and improve margins, the company will introduce clothing, parts and accessories to its expanding network of shops in China.
China Bicycles recently announced excellent interim results, with post tax profits up 65 per cent. The company plans to expand domestic sales from 20 per cent to 30 per cent this year to improve profit margins. The company is also cautiously venturing into the production of motorcycles, a new growth market in China.
The company will also be active in the development of a mixed useage property in Chengdu over the next two years. Permission is understood to have been obtained for the project to be separately listed on the stock exchange.
Duncan Mount is a director of The China Fund and managing director of CEF Investment Management Limited which may have an interest in and/or hold positions in securities mentioned above.