YUGANG International, which trades audio-visual products and components, is expected to launch a $119.8 million new issue next week. The company will offer 91.5 million new shares at $1.20 each, which represents 25 per cent of the enlarged share capital. One 1996 warrant, with a strike price of $1.40, will be given for every five shares. The new issue will carry a price-earnings multiple of 5.8 on a weighted average and seven on a fully diluted basis, and a prospective dividend yield of seven per cent. Capitalised at $439.2 million, Yugang is backed by an adjusted net asset value of 51.4 cents a share. The company is forecasting a profit before extraordinary items of no less than $60 million for the year ending December, against $30.7 million last year. Earnings per share will be 20.8 cents on weighted average and 17.1 cents on a pro forma fully diluted basis. A final dividend of 5.6 cents a share will be recommended. Net proceeds of the issue will amount to $100 million, of which $20 million will be used to set up additional sales offices in Wuhan, Chengdu, Hainan, Tianjin, Weihai and Changsha. About $50 million will be used to finance the acquisition of office space of 10,000 sq ft on Hong Kong island as the company's new headquarters. The remaining $30 million will be reserved as additional working capital. The new issue, sponsored by Peregrine Capital, will open for public application on Wednesday and close on November 2. Trading in Yugang shares and warrants is expected to start on November 12. Yugang, established in 1985, is engaged in the trading of audio visual products, industrial equipment and vehicle parts, mainly to mainland customers. The company is owned by Chongqing Industrial, which is 30 per cent owned by locally listed Luks Industrial. Currently, Yugang has more than 40 customers including Qingdao Television Factory, Chongqing Foreign Trade Import and Export Corp and China National Overseas Corp. The company believes its foreign currency exposure risk is minimal as most sales orders are denominated in US or Hong Kong dollars. It also considers that the austerity measures implemented by China will not have a significant impact on the company's prospects. Yugang intends to diversify into trading of construction materials, and it has entered into an agreement with state-owned Chongqing Light Industrial Product. Chongqing Light Industrial has agreed to source from Yugang not less than US$10 million worth of construction materials for three years. Yugang intends to source construction materials from Japan, Hong Kong, Russia and Europe. Cheung Chung-kiu is the founder and chairman of Yugang. He is a non-executive director of publicly listed International Industries.