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SCMP Reporter

A DOZEN YEARS ago Herbert Ip Ki-cheung wondered if there wasn't an easier way of doing things.

The Hong Kong businessman would spend weeks trudging around Europe showing buyers samples of his artificial flowers.

His answer was to set up Kenfair International (Holdings), a trade show organiser which provides a one-stop shop for Asian manufacturers to showcase their wares to potential clients in the region and beyond.

Kenfair made its stock-market debut on Wednesday. Investor reaction so far has been moderate rather than spectacular, with the stock closing at HK$1.10 yesterday against its HK$1 initial public offering (IPO) price.

Company executives, however, believe Kenfair has a cheap valuation and earnings growth potential.

'I think the development of the company will give the small shareholders of the company a promising future,' financial controller Douglas Tsui said.

Kenfair's bread and butter is staging what it calls the October Shows at the Hong Kong Convention and Exhibition Centre.

A toys and gifts show has been run simultaneously with one featuring household products.

Last year they were the largest trade fairs at the exhibition centre.

The number of exhibitors, which provide Kenfair with most of its revenue, has risen steadily from 320 in 1993 to 2,950 last year. About half come from Hong Kong with the rest from around the region.

Not content to stand still, Kenfair last year launched the first Asia Expo at the Grand Hall in London's Olympia, which attracted 500 exhibitors seeking to get closer to Western markets.

Senior manager Javed Khan said: 'Asian products were well known for their quality and pricing. But previously when they went to European shows they might be scattered in various halls. It was quite frustrating [for buyers]. That's the reason we came up with the idea.'

This year's London show saw the number of exhibitors rise to 600 with an unaudited profit of HK$1 million on turnover of HK$17 million.

With more exhibitors in Hong Kong and London, revenues have risen from HK$53.94 million in 1999 to HK$150.33 million last year. Attributable profits are up from HK$8.53 million to HK$39.54 million in the period.

Earnings per share rose to 27 HK cents for the 12 months to March 31 last year from six cents in 1999.

Kenfair has a durable business model with high barriers to entry, executives believe. At the heart of its business is a global database of 200,000 corporate buyers which Kenfair has built up over the years and jealously guards. The buyers are given invitations and free entry to Kenfair's shows and are essential to making it worthwhile for exhibitors to pay for a booth.

'If traffic is not good, exhibitors are not going to join the show,' Mr Tsui said.

Buyers and sellers have found it a cost-effective way of doing business, allowing Kenfair to enjoy 'quite steady' net margins of 26 per cent, Mr Tsui said.

Even during the grim days of the Asian financial crisis business was quite good as manufacturers had to make more aggressive efforts to market products, Mr Khan said.

'In general exhibitions go against the [economic] trend,' he said.

There is more growth potential in the pipeline. Kenfair plans to begin an annual Asian Food Fair in Hong Kong next year for the hotel and catering industry and put on an annual Asian Gems and Jewellery Show in Bangkok in 2004.

Following Beijing's World Trade Organisation entry, Kenfair is hoping to be able to set up a wholly owned venture to run shows in the mainland. Kenfair was not 'comfortable' sharing its database with a joint-venture partner as present rules required, Mr Khan said.

Those rules should be relaxed by the end of next year or early in 2004.

WTO entry should stimulate more trade activity for China which could have a positive knock-on effect to the trade-fair business in Hong Kong, the company believed.

For now, Kenfair relies almost entirely on the October Shows to provide its revenue. There may be room for growth there too.

Kenfair aims to split the shows and run them concurrently so more exhibitors can be accommodated now space is at a premium.

There was already a waiting list of 400 exhibitors to the October Shows so the demand was there, Kenfair executives said.

Despite the growth potential, Kenfair is cheaply valued on a price-earnings ratio of 4.4 times, based on its close yesterday and its expectation of fully diluted earnings per share of 25 cents for the year to March 31.

With all that going for it, Kenfair looks like an attractive investment. There is reason to pause, however.

The structure of Kenfair's flotation shows the number of shares has been increased by 36 million from 144 million before the IPO to 180 million after, with 72 million shares sold.

The additional 36 million in the float came when chairman Mr Ip and his fellow substantial shareholders Duncan Cheung Shui-kwai and Felix Chan Siu-chung reduced their holdings.

The main shareholders cashing out some of their gains now rather than waiting for potential further share-price appreciation and dividends later could send negative signals to investors.

Kenfair claimed minority shareholders had nothing to worry about.

'The directors have full confidence in the company's business and its prospects,' Kenfair said.

'Directors sold their shares in order to avoid further dilution in earnings per share.'

Besides the share sale, the substantial shareholders also paid themselves a handsome interim dividend in October of HK$34.5 million on profits for the seven months to October 31 of HK$55.35 million.

Dividends paid for the company's performance during the last financial year amounted to HK$51 million, exceeding the HK$39.54 million profits for the period.

'I think it is usual practice in Hong Kong for the old shareholders to reward their contributions in the past,' Mr Tsui said.

The company would not be paying a full-year dividend this year, he added.

Small shareholders who climbed aboard Kenfair during the IPO or thereafter will have to wait until next year before they are rewarded with a dividend.

Graphic: ken12gbz



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