The industrial play has a good story to tell, but the trick is explaining its plans to retail investors When coming to market for the first time, it's helpful to have a good investment story. This is the challenge facing Ocean Grand Chemicals Holdings. The unit is a spin-off of aluminium extruder Ocean Grand Holdings. Its business is manufacturing electroplating chemicals, such as gold salts, silver salts and palladium salts. But what exactly electroplating chemicals are used for takes some explaining to the average retail investor. The website of the World Gold Council helpfully explains: 'Electroplating using plating salts involves the deposition of a thin gold layer or coating onto a conducting substrate, typically a base metal, by electrolysis.' Got it? What investors need to know is that electroplating chemicals are found everywhere. Electroplating is used in the electronics industry to coat contacts and connectors, to give them conductivity. It also has decorative uses in the plating of jewellery and watches. Electroplating can be found in just about any type of electronics, from telecommunications equipment to printed circuit boards. Still, explaining this to investors can be a difficult sale, which may be why Ocean Grand Chemicals has not been trading much higher than its initial public offering price of 88 cents. It closed yesterday at 84 cents - 4.54 per cent below its offer price. 'In the short term, the counter will be facing significant selling pressure as the initial public offering investors - mostly short-term players - unload their shares,' Phillip Securities research director Louis Wong Wai-kit said. Despite the lacklustre performance so far, Steven Leung Wai-yuen of UOB Hay Tian Hong Kong remained upbeat on the counter. 'The business and prospects of the company seem appealing to me,' he said. What catches the eye of many analysts and fund managers is the strong demand for electroplating chemicals from the light industries operating on the mainland. The company was previously the chemicals unit of its main board-listed parent, but now hopes to find greater fortune by going solo. 'We can now have a better focus on the businesses,' said Herbert Hui Ho-ming, deputy chairman of Ocean Grand Holdings and Ocean Grand Chemicals. 'This marks an important corporate move for us.' Analysts said the spin-off would give investors more choices, and some said the unit could command a higher valuation than its parent. At five to six times forward earnings, Ocean Grand Chemicals does not seem expensive, analysts said, considering the company's growth and scale and its focus on serving mainland manufacturers. 'We are riding the exponential growth of light industries in China ... and we will solidify our hold in the China market in the near term,' Mr Hui said. 'Electroplating chemicals manufacturing is a demand-driven industry ... as China is now becoming a global factory.' He expected Ocean Grand Chemicals to post double-digit earnings growth over the next two to three years. JS Cresvale analyst Gabriel Chan estimated the company's earnings would jump 160 per cent to 13 cents a share in the year to March and 23 per cent to 16 cents next year. 'The main growth drivers are higher sales of plating salts arising from higher demand in China and additional profits earned from the self-production of silver, palladium and rhodium salts [from its new production plant in Zhuhai],' Mr Chan said. The company built a new plant in Zhuhai to increase capacity and at the same time reduce its reliance on orders from Changzhou Chemical Research Institute. About 67 per cent of the company's gross profit for this year comes from outsourcing orders from the institute, which boast margins as high as 86 per cent. But as the company comes to depend less on the institute for orders, margins are expected to fall. The self-production and trading of plating salts has a gross margin of between 8 and 20 per cent. 'We expect the company's gross profit margin to drop from 17.8 per cent for this year to 12.3 per cent next year,' Mr Chan said. 'The drop is primarily due to the increasing proportion of sales of self-manufactured plating salts.' William Kwan Man-wai, assistant director of business development at Ocean Grand Chemicals, estimated that the company's margin would be at about 15 per cent. In addition to margin worries, there are also concerns the company may lack the technical know-how to run and operate the plant. But the company noted it had formed a co-operation alliance with the institute to assist in the management of the plant, expected to be fully operational by the first quarter of next year. Going forward, Ocean Grand Chemicals said it would be on the look-out for expansion opportunities, both horizontally and vertically. Mr Kwan said the company was exploring electroplating opportunities in the car and photographic industries.