FOUNDER (Hong Kong) plans to defy bearish sentiment towards China stocks when it opens a public offering next week. Founder's move follows the shelving of a flotation of H-share candidate Guangdong Fotao Corp last month. As a unit of Beijing University's Founder Group, the electronic publishing system developer planned to sell 162.5 million shares in a listing, raising up to $350 million, said a source with its underwriters. Of this, 137.5 million shares would be new shares and the remaining 25 million would be sold by the parent. The source said Founder would set aside 60 per cent of the shares for a private placement tomorrow and on Friday, and the balance would be for public subscription from Tuesday to Friday next week. Founder initially priced the shares at between $1.76 and $2.20, or eight to 10 times this year's earnings on a fully diluted basis. Its full-year profit forecast was $108 million, with earnings per share at 21.6 cents. It is expected the company will sell the shares at about $2 each, or at a multiple of about nine times. More than 300 analysts and fund managers attended Founder's presentation yesterday, indicating strong interest in the stock. 'I think it should be at least fully subscribed, judging from the turnout of the presentation, one of the largest recently,' an analyst said. Some analysts were not impressed by the management which was said to be evasive about questions over the impact of China's tariff reduction on its performance and its mounting inventories. Founder had an inventory of $274 million at the end of June, more than half of its interim turnover, due to a glut of imported computers for distribution. Analysts raised concerns of fierce competition with international software makers in overseas markets and the volatility of the computer distribution business. James Capel Securities, a stablemate of HSBC Corporate Finance, Founder's sponsor, expected the company's earnings to grow 27 per cent next year. It is understood that Founder's electronic publishing business had a gross margin of 33 per cent last year, to be raised to 34 per cent this year. The margin for computer distribution was 10 per cent last year, but is to be improved to 16.5 per cent this year. Founder is one of the H-share candidates allowed to issue shares abroad, but it has opted to be floated through a Hong Kong-incorporated vehicle to appeal to foreign investors.
