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SCMP Reporter

Train-borne power gear provider taps market for HK$1b expansion war chest

Zhuzhou CSR Times Electric, one of the largest train-borne electrical system providers in China, plans to raise at least HK$1 billion from an initial public offering in Hong Kong next month, hoping to capitalise on the continued strong investor appetite for new stocks, market sources said.

Zhuzhou CSR has been meeting investors since Wednesday and will receive orders from institutional investors by the end of next week, a person close to the transaction said.

The company will be one of more than a dozen that plan to raise funds from a Hong Kong IPO before  year-end.

Most new offerings have recorded strong demand, reflecting  investors' confidence despite the recent market slump.

'Zhuzhou CSR's fund-raising target may come higher eventually as fund managers show strong interests in this company, giving it larger room to bargain for a better valuation,' the source said.

The proceeds will be used mainly  for  capacity expansion, new product development and potential acquisitions of two ventures from its working partner. Macquarie Securities is the sole sponsor of the share sale.

Macquarie, in a research report, said that Zhuzhou CSR is poised to benefit from the boom in China's rail equipment capital expenditure, estimated at  1.5 trillion  yuan, under the country's 11th Five-Year Plan from  this year to 2010.

'We estimate that the  market potential for [Zhuzhou CSR] would easily top 5.95 billion yuan per year in China alone,' the research report said.

The Central Government  has earmarked  two trillion yuan for the country's  massive railway system over  the next 15 years in a bid to catch up with  population growth.

Zhuzhou CSR, which develops traction converters for railway transportation, is expected to report 28.3 per cent earnings growth to 272 million yuan  for this year, up from 212 yuan last year,  driven by higher sale volumes with new high-priced products, Macquarie said.

The firm, which  supplies its products to the Ministry of Railways, also seeks  to expand abroad.

Macquarie said the  firm would face full utilisation by year-end and should boost overall capacity by 133 per cent to meet demand from the domestic and international markets.

'Apart from expanding  overseas,  increasing sales to non-railway markets would  be a driver  of future growth,' the bank said.

However, Macquarie is also concerned about Zhuzhou CSR's expansion plan as the company is relatively less  experienced in exporting train-borne electrical systems.

Macquarie values the  firm at between 3.94 billion yuan and 4.92 billion yuan, based on 12 times to 15 times forecast  earnings next year.

The valuation is based on  a comparison with a basket of peers in the United States, European and Japanese power equipment markets.



Zhuzhou CSR lines up HK share offer