Designer handbag outlet Milan Station, which is seeking an initial public offering, has no plans to purchase properties to cut costs even though its rent rose almost 40 per cent last year.
The second-hand bag trader is selling a total of 162.5 million shares in an IPO and has priced the shares between HK$1.17 and HK$1.67, raising up to HK$271.38 million.
The cost of operating outlets in Hong Kong's prime shopping locations such as Causeway Bay and Central, where most of its stores are located, have risen substantially.
Rental expenses surged 38.9 per cent from 2008 to HK$41.6 million last year, with the company paying on average HK$525,400 per sq ft for its Hong Kong stores.
Chairman and chief executive Byron Yiu Kwan-tat, who founded the handbag chain 10 years ago, said Milan Station would continue to rent its 14 stores in Hong Kong, Macau and Beijing. Rental expenses would be kept between 6 and 10 per cent of the company revenue, said Yiu, who will own 75 per cent of Milan Station after listing.
The company's revenue last year totalled HK$730.3 million, up 19.5 per cent from 2009.
Net profit grew 38.5 per cent to HK$54.3 million from 2009.
According to the IPO prospectus, Yiu is expected to receive HK$52.4 million of net proceeds from selling some of his stake if the offering is at HK$1.42 per share and the over-allotment option, which enlarges the share capital, is not exercised.
'A lot of people have asked me if I am losing confidence in the company because I am selling [some of my shares],' Yiu said. 'Milan Station is like a baby to me ... there's still a lot I want to do in future [with the company].'
Milan Station has also four cornerstone investors, who will subscribe to its shares at the offer price and will be required to have their holdings locked up for six months. The four cornerstone investors are Ricky Cheng Wai-tao, owner and operator of the Itamae and Itacho Japanese-style sushi shops, Raymond Lee Man-chun, chief executive of Lee & Man Paper Manufacturing, Jimmy Tang Kui-ming, chairman and the majority shareholder of Prince Jewellery and Watch Company, and CCB International Asset Management, which is controlled by China Construction Bank Corp.
The four investors could subscribe to up to HK$58 million worth of shares.
Most of the net proceeds will be spent to expand business on the mainland, where Milan Station hopes to set up 24 new outlets in the next two years in Beijing, Shanghai, Guangzhou, Chengdu and Hangzhou among other cities.
The designer handbag outlet's second store in Beijing was opened last year and it estimated that the total cost for setting up a shop on the mainland was about HK$8.7 million.
Byron Yiu Kwan-tat is selling some of his shares in Milan Station
This is the number of shares in the designer handbag trader that will be up for grabs in the IPO: 162m
If the offering is at HK$1.42 per share, Yiu is expected to receive this much of the net proceeds: $52m