A CHINESE associate of Hong Kong's Benelux International is seeking to raise $40 million by floating B shares in Shenzhen, in the exchange's second issue aimed at foreign investors this year. Shenzhen Benelux Enterprise Co, a manufacturer of magnetic storage media products, has earmarked half of the proceeds to pay for diversification into liquid gas distribution and property development in Wuhan, China. A source with the underwriting team said the company would issue 13 million B shares to international investors through a private placement. The shares, accounting for 26 per cent of the company's enlarged share capital, would be priced at between eight and 8.5 times 1994 prospective earnings. The pricing would be fixed by the end of this month, pending the final verification of the listing prospectus, the source said. Shenzhen Benelux has steadily increased revenue from sales of micro-cassettes, 3.5-inch floppy disks, video-cassette shells and audio-tape cassettes. Its profit margin, however, has been squeezed by fierce competition. Its sales rose to 137 million yuan (about HK$122 million) in 1992 from 75 million yuan in 1991, while its earnings increased to 8.6 million yuan from 4.8 million yuan. The company changed its accounting currency into Hong Kong dollars from the end of last year to reflect its business scope. About 90 per cent of its products are sold overseas through its Hong Kong parent, Benelux International. Last year, it chalked up sales of $237 million, and made an after-tax profit of $9.4 million. The company expects an after-tax profit of $20 million this year, and is looking for a boost from a thrust into the domestic market. The source said there was a bigger profit margin on 3.5-inch floppy disks sold within China than on those exported. He expected the domestic market to contribute about one-third of the company's profit this year. He also expected the company to benefit from a market recovery, with many small magnetic storage media producers having closed down as a result of China's economic austerity programme launched last year. Shenzhen Benelux would spend $20 million on the investments in Wuhan. ''It's good for the company to diversify its business,'' said the source. He also noted: ''The market for magnetic media products has already matured.'' The company plans to use $3.5 million to expand and enhance production lines and spend $12.5 million on research and development. Benelux International will lower its stake in Shenzhen Benelux to 23.55 per cent from 35 per cent in the float. Another 1.72 per cent will be held by Hong Kong-registered Jolly, and 48.73 per cent by two mainland concerns and the company's staff. Underwriters include Taiwan-backed Trident Capital, HG Asia, Yamaichi International and China's J & A Securities.