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Rainbow dangles dividend payout

Rainbow Brothers Holdings, which aims to raise up to HK$75 million in a Hong Kong initial public offering, plans to distribute 50 per cent of its profit as dividend to lure investors, market sources said.

The Hong Kong firm, a specialist in providing consumer products with a retail price of US$1 each, will sell 50 million new shares at between HK$1.12 and HK$1.50 each or six to eight times historical earnings.

Retail subscription will open from next Tuesday to Friday, sources said. Trading is scheduled to start on November 19. Asian Capital is the sponsor of the deal.

Rainbow, which makes goods for parties and festivals, provides more than 2,000 types of products for dollar store chains in the United States, Europe and Asia.

The company posted a net profit of HK$37 million for the year to March, up 61 per cent from HK$23 million a year earlier.

Turnover grew 50 per cent to HK$315 million, according to its presentation materials distributed to institutional investors.

For the first four months to July, profit rose 3 per cent to HK$13.2 million on turnover of HK$132 million.

The company's gross margin declined from 21.2 per cent last year and to 20.7 per cent this year.

About 87 per cent of the products Rainbow sold were party and festivity items, with the rest including household and garden goods, toys and stationery gifts.

North America accounted for 68 per cent of firm's sales volume for the year to March, while Asia contributed 23 per cent.

Dollar Tree Stores, one of the top four dollar store chain operators in the US, is one of Rainbow's key customers.

The company plans to use 46 per cent of the initial stock offer proceeds to repay short-term bank borrowings and the rest for marketing and other purposes.

Rainbow said it planned to establish sourcing offices in the mainland in the next 18 months and would search for new sourcing contacts in Vietnam to expand its supplier base.

Investor treat

The company plans to pay out 50pc of profit as dividend to investors

The number of new shares in Rainbow Brothers' initial public offering: 50m

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