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SCMP Reporter

Xingye Copper International Group, a mainland producer of copper alloy plates and strips,  expects to raise as much as HK$382.5 million from its initial public offering.
The Ningbo company  makes and sells  copper alloy parts used mainly in electronics, electricity generation, communication, machinery and hardware, architectural fittings, home electrical appliances and telecommunications networks.
It has 47 distributors and 197 direct-sales clients domestically and some 38 overseas customers such as Foxconn (Kunshan) PC Connector  and 3M China.
'Xingye has a significant market share in the industry but its products   have low margins,' said Wong Wai-kit, a research director  at Phillip Securities.
The indicative price range for the share sale is between HK$1.70 and HK$2.55.
The public offering began yesterday,  with trading of the shares expected to start on December 27.
Xingye is  one of a series of mainland companies making initial  offerings in Hong Kong  at a time when investor interest appears to be fading.
'Our key target for the listing is to promote our brand. Raising funds is not the most important goal for us,' chairman Hu Changyuan said.
'We hope our brand will be recognised internationally. To be a listed company is our long-term goal.  If we fail this time, we will try again next time.'
'We want to use this chance to review our previous performance,' said Chen Jianhua,  an executive director and general manager.
'Our listing plan will be a new chapter for our future development.'
Established in 1998, Xingye reported  58 per cent growth in sales to 868.2 million yuan for the six months  to June from a year ago, while net profit rose 17 per cent to 76.33 million yuan.
'The firm has had strong profit growth in the past few years,' said Michael Wong Man-sek, a research director at Hantec Investment International. 'However, Xingye's share sale may not be as attractive as it expects given that investors are becoming increasingly cautious towards new flotations.'
Mr Wong said  market sentiment  toward initial offerings remained weak and most   recent  listings had not performed well.
Domestic sales, which accounted for about 83.8 per cent of Xingye's total sales, grew 77 per cent to 727 million yuan in the first half of this year. Its overseas sales rose only 1.2 per cent to 140.6 million yuan while its  gross margin fell to 12.8 per cent from 16.7 per cent.
'The drop in our gross margin was due to the fluctuating price of copper in the past few years,' Mr Chen said.
'Increases in raw material prices will result in higher gross revenue as we pass the cost of raw materials on to our customers, but this may lead to  lower margins.
'Decreases in raw material prices may result in a devaluation of our inventory, which will negatively affect our net asset value.'
He said the firm  would ease the impact of raw material costs by controlling inventory, shifting costs to customers and using more recycled alloys.
Full-year sales  shot up 135 per cent to 1.51 billion yuan  last year from 2005. Net profit rose 120 per cent to 106.7 million yuan.
In the first half, the company had a production capacity utilisation rate of 75.8 per cent, Mr Chen said. 'The rate will be  about 85 per cent by  year-end and reach 100 per cent next year.'
Mr Chen said the company  would use 78 per cent of the net proceeds from  the share offering to expand its production capacity, which is about 60,000 tonnes annually.
Xingye will spend HK$207.7 million to boost its production capacity. It will build two sets of finishing rolling mills and other ancillary facilities, four sets of continuous strip annealing furnaces in Hangzhou Bay, Zhejiang province.
It will also set up new manufacturing facilities and buy various production equipment  for the plant in Yingtan, Jiangxi province.
'We will spend HK$35.2 million to develop large-scale production of new products, namely high-precision beryllium copper plates and strips and high-precision red copper plates and strips,' the company said.
Xingye expected to set aside about HK$257.8 million of the  proceeds from the initial offering for capital expenditure over the next two years.
A preliminary prospectus  prepared by bookrunner of the offering, Bank of China International, forecasts that the company  will enjoy an 18.5 per cent rise in net profit to 179 million yuan next year from an estimated 151 million yuan  for this year.
The investment bank valued the firm at 1.54 billion yuan, suggesting a price-earnings ratio of 8.6 times  for next year.
'The share's valuation is reasonable and attractive to some investors,' Francis Lun Sheung-nim, a general manager at Fulbright Securities. 'But the firm will have limited growth as  it is not big enough.'
What the analysts say
Louis Wong Wai-kit, research director, Phillip Securities
Pros: The firm has a significant market share in the industry.
Cons: The firm's products have low margins.
Michael Wong Man-sek, research director, Hantec Investment International
Pros: The firm has had strong profit growth in the past few years.
Cons: Market sentiment remains weak and most of the new offerings have not performed well.
Francis Lun Sheung-nim, general manager, Fulbright Securities
Pros: The share's valuation is reasonable and attractive to some investors.
Cons: The firm will have limited growth as  it is not big enough.



Xingye Copper seeks global fame