C. P. POKPHAND'S Shanghai EK Chor has been successfully listed on the New York Stock Exchange. The issue was originally intended to be priced at US$15 to $16. Interest was so great that the issue price was moved up to US$21. On the first day's trading at the end of June, the stock hit $25, with three million shares trading. This is a far cry from the terrible reception granted to recent B share issues. In addition to the New York listing, Shanghai EK Chor is also planning to list A and B shares on the Shanghai Stock Exchange. Shanghai EK Chor's business has an excellent track record. It was set up in 1985 as a joint venture with Shanghai Automobile. A technical agreement was signed with Honda to produce its 125 cc motorcycle engine. Production has increased rapidly since and profit margins are high. Over 82 per cent of parts are sourced locally. The motor bikes can be sold in either yuan or US dollars and are nearly all sold in China. Demand for EK Chor's Xingfu motorcycle is greater than supply and has been growing sharply. Production of the Xingfu 125 cc bike, which is only available in red, will be increased further by the setting up a new factory in Pudong. By 1995 this plant alone could produce 400,000 bikes and 600,000 engines. In 1991 the company produced a total of 168,000 bikes while in the early 1980s it was producing only 25,000 bikes a year. Pre-tax profits have been rising smartly from 15 million yuan (about HK$19.5 million) in 1987, hitting 98 million yuan in 1991. Profits after tax in 1992 rose by 42 per cent to 67 million yuan. The first quarter of this year may have seen net profits grow by up to 60 per cent on an annualised basis. China's eventual re-entry into General Agreement on Tariffs and Trade fold may encourage fierce import competition from the likes of Suzuki and Honda. But the Xingfu name is already very well received in China. Nonetheless, the company will benefit somewhat from cheaper imported materials and will also concentrate more on export markets. An increase in exports from five per cent to 25 per cent of turnover is targeted. EK Chor is continuing to build up its parts and components production and is also planning to set up overseas plants, possibly in Turkey and Argentina. The production process in Shanghai is fairly highly mechanised and labour costs only represent seven per cent - eight per cent of total production costs. The growth market for motorcycles in China is in the 125 cc category where EK Chor has a 44 per cent market share. Duncan Mount is a director of the China Fund and managing director of CEF Investment Management which may have an interest in and/or hold positions in securities mentioned above.
