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SCMP Reporter

Eyang Holdings (Group),  a maker of electronic capacitors and mobile telephones,  is aiming  to raise HK$130 million from  its initial public share offering to expand  production capacity and research and development capability.
The company is selling 100 million new shares at HK$1.30 each, of which 90 per cent will be for international investors and the rest for Hong Kong retail punters.
The local subscription began yesterday and will close  at noon on Friday.
Allotment results will be announced on December 20 and the shares will  start trading  on the stock exchange the following day.  CAF Securities is the sole sponsor and bookrunner for the deal.
Legend Group, the controlling shareholder of computer maker Lenovo Group,  is one of the shareholders holding about 6.72 per cent stake after the listing.
Eyang makes multi-layer ceramic capacitors (MLCC),  which are compact, high-powered and reliable electronic parts for various types of circuits.
In December 2005, the company    started producing mobile phones under its own brand 'EY' after winning an approval from the National Development and Reform Commission.
Eyang estimated this year's net profit will reach 68 million yuan or  17 fen per share on a fully  diluted basis. The price of its  shares represents 7.4 times the company's   estimated earnings for this year, according to a share offer document.
For the first nine months, it reported a profit of 42.11 million yuan, up 24 per cent from a year ago, on a 12 per cent gain in revenue to 568 million yuan.
According to its share sale document, Eyang distributed 70 million yuan in dividends last year, more than its full-year profit of 48.2 million yuan.
The company also distributed 4.5 million yuan in dividends for the first nine months and is expected to pay at least 30 per cent of profit as dividends in the future.
'The size of Eyang is too small and investors can choose bigger plays such as Foxconn International Holdings or BYD Electronic International,' said Kenny Tang Sing-hing, an associate director of Tung Tai Securities.
Established in 2001,   Guangdong-based Eyang was the first mainland firm to make mini MLCCs using  base-metal technology. MLCCs  contributed 28 per cent of the group's revenue in the first nine months of this year.
'Rising demand for tiny household appliances and mobile phones is changing the development of electrical component technology,' said company chairman Chen Weirong.
According to Pday Research, global demand for MLCC products recorded a compound growth rate of 24.9 per cent  from 2002 to 2006.
MLCCs are  widely used in portable electrical and digital products, accounting for 42 per cent of the global capacitor market last year.
Aluminium electrolytic capacitors and tantalum capacitors accounted for 30 per cent and 12 per cent,  respectively.
'We target to raise our MLCC production capacity to over 450 million units next year, up   from 300 million units before listing,' Mr Chen said earlier this week at a press conference. In 2002,  the company  acquired a 22.02 per cent stake in a mobile phone company.
It  then formed a wholly owned subsidiary to directly tap the mobile-phone market. The first production line started commercial operations in June 2004.
Eyang's EY brand focuses on low-end customers, particularly those living in rural areas. In May 2006, the company launched PDA mobile phones targeting urban users. Sales of mobile products contributed  71 per cent  to the firm's nine-month revenue.
'We would expand our handset production capacity to 4.4 million units annually next year with 11  production lines, up from three at present,' Mr Chen said.
Of the HK$100 million in net proceeds from the public offering, Eyang will  use HK$59 million  to acquire MLCC production facilities and HK$12 million for boosting MLCC research and development capability.
Eyang will also spend 24 million yuan on developing the mobile phone-related business, including acquisition of third-party solutions for the  3G mobile phones and mobile-phone  production facilities, and promoting the EY mobile-phone brand.
Kenny Tang Sing-hing, associate director, Tung Tai Securities
Pros: The company will have a better customer profile once it secures the listing status.
Cons: The company's market capitalisation is too small. Investors should look at  its bigger  peers, such as BYD Electronics International.
Emily Wong, assistant vice-president, BOC International
Pros: Secured Legend Group as strategic investor.
Cons: Poor market sentiment on newly listed companies.
Michael Wong Man-shek, research director, Hantec Investment
Pros: The lower price for its initial public offering may attract the attention of the market.
Cons: The industry Eyang is involved in is not that attractive



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