Although the stock market experienced a sharp downward adjustment in the first three months this year, he said that average daily turnover remained higher, compared with the same period last year.

Mr Lee added that the company's provision of margin financing to customers was unlikely to be affected by the upward movement of interest rates.

Cheerful's margin financing service aimed to generate gains from the difference between banks' lending rates and the rate the firm gave to its clients, he said.

''An increase in the company's lending costs will be passed on to clients accordingly,'' he said.

Group chairman and managing director Johnny Chee Jing-yin said Cheerful's profitability was not entirely dependent on stockbroking.

The company also offered broking services for bullion, commodities and foreign exchange, he said.

Cheerful's offer prospectus, however, noted that the group's earnings might be significantly affected by factors outside its control.

Its profit in any particular period did not necessarily form a reliable basis for predicting future performance, it said.

The prospectus said its income was directly related to, and affected by, the volume of trading and the rate of commission.

It said its margin financing might be similarly affected by the prevailing interest rates and financial facilities available.

The company reported profit of $21.3 million and turnover of $64.08 million for calendar 1993, compared with profit of $8.5 million in 1992.

Cheerful is offering 63.9 million new shares at $1 each, with one free warrant for every five shares subscribed.

The new issue, representing 30 per cent of the group's enlarged share capital, carries a price-earnings multiple of seven on a weighted average, and 10 on a fully diluted basis.

Cheerful is capitalised at $213 million, and backed by an adjusted net tangible asset value of 63.5 cents a share. It has a prospective dividend yield of seven per cent.

Proceeds of the share offering will amount to $54.4 million.

About $30 million of this will be used to expand the capital base of the group's foreign-exchange division, in accordance with the Government's proposed regulations on leveraged foreign-exchange trading.

The remainder will be used as additional working capital for expanding the company's client base, its broking activities and its range of financial services.

After the listing, Mr Chee and his wife will own 70 per cent of the company.

Under their service agreements with Cheerful, Mr and Mrs Chee and Mr Lee will collectively receive about $3.15 million as their annual salaries and service fees for 1994.

They are also entitled to a bonus payment of up to six per cent of the company's net profit.

Cheerful's new issue is sponsored by Standard Chartered Asia.

Trading in the shares and warrants is expected to begin on April 27.