Tongda Group (Holdings) plans to raise HK$62 million through a share issue and flotation on the main board of the stock exchange. The supplier of parts and components for electrical appliances and consumer electronic products in China will use the proceeds to expand production facilities and bankroll research and development of new products. A placement of 50 million shares, or 66.66 per cent of the total on offer, started yesterday. Company sources said that, judging from the volume of orders received on the first day, investor reception was 'very favourable'. A public offer of 25 million shares will start today. Both the placement and the initial public offering (IPO), at a proposed price of HK$1 per share, will close on December 15. Trading on the stock market is due to start on December 22. Although headquartered in Hong Kong, Tongda has all three production facilities, employing more than 900 people, in Shishi, Fujian province. Its main products include ironware parts, such as casings for personal computers and home electrical appliances, appliance accessories and electronic components. For the year to December 31 last year, Tongda reported turnover of about HK$288.58 million, up from HK$251.2 million in 1998. Net profit rose to HK$45.46 million from HK$28.02 million in 1998. Tongda's net profit was HK$34 million in the first half of this year, with about HK$60 million forecast for the full year. According to Tongda financial controller Kelvin Ko, the company had maintained a gross profit margin 23 per cent to 27 per cent in the past three years. Mr Ko attributed the growth in turnover and profit to effective cost control and development of new products with higher profit margins, such as its digital satellite television receiver. Such measures are necessary to survive the high-growth but crowded China market. Tongda exported 36 per cent of its output, mostly to Southeast Asia, in the first half, up from last year's 33 per cent. Its key clients are China-based manufacturers. China's National Information Centre reported that the domestic electrical appliance and consumer electronics market had on average grown at 14.5 per cent annually between 1994 and 1999. However, output growth, at an annual average of 24 per cent between 1996 and 1999, often outstripped growth in demand. Exports of such products, increasing at 29 per cent a year between 1991 and 1998, could only absorb part of the surplus. Domestic competition on price and technology is keen. A number of industrial giants, including Sharp, Samsung, Kenwood and Philips, figure prominently among Tongda's clients. Some of them had been with Tongda for more than 10 years, Mr Ko said. However, most contracts have been short term. 'Any failure by the group to adjust promptly to meet customers' specific requirements would have a material adverse effect on the group's future growth and profitability,' according to the listing prospectus. However, Tongda's management remains bullish on growth prospects. Construction on a new factory in Shenzhen is to begin next year. When the first phase is completed by next October, it would increase the company's turnover by at least 20 per cent, Tongda chairman Wang Yanan said. 'We believe that more internationally and locally renowned manufacturers will set up production facilities there after China's entry into the World Trade Organisation,' Mr Wang said. He said acquiring a production facility in the area would help the company capture a fair share of new demand.