DONGFANG Electrical Machinery will price its shares at the lower end of a proposed range in its float to raise $481.1 million from the Hong Kong market. Being the last of the first batch of China state-owned enterprises to list in the territory, analysts expect the share issue of the hydro generators manufacturer will draw more enthusiastic response than Tianjin Bohai Chemical Industry (Group) Co, whose initial public offering was barely oversubscribed two weeks ago. Besides Dongfang's position in a growing electricity industry and reasonable pricing, analysts praise its edge in cushioning from the emerging problem of triangular debts that has plagued some of the H-share companies. Dongfang made a provision of 2.5 million yuan (about HK$2.23 million) for bad debts in 1991 and none in 1992. In spite of China's austerity programme last year, the company set aside only 650,000 yuan for bad debts last year. According to the company's preliminary listing prospectus that will be available to investors on Thursday, Dongfang will issue 170 million shares, accounting for 37.8 per cent of its enlarged share capital, at $2.83 each. Of the shares, 57.5 million will be for an international placement and the remaining 112.5 million will be offered to the public. The pricing will put the share at 11.94 times prospective 1994 earnings on a fully diluted basis, compared with an average of 13 to 14 times by the other H-share counters. On a weighted average basis, Dongfang's shares will be sold at 11.69 times. Tianjin Bohai's shares were sold at 12.6 times on a fully diluted basis. Dongfang's issue price was fixed after a company roadshow to Europe and Japan last week organised by sponsor Nomura International. The company had initially proposed a price range of 11.5 to 13.4 times. Dongfang expects to almost triple its net profit this year to 95 million yuan from last year's 32 million yuan. A source at the underwriting team said overseas response had been encouraging, and he estimated it had been more than 10 times oversubscribed for the shares apportioned for international placement. He also expected a warm response for the public offer. PBI Securities' analyst Desmond Cheung said although Dongfang had only about 26 per cent share of the mainland market, it stood to reap from its geographical advantage because of its proximity to the Three Gorges project. ''The market condition is favourable to the company,'' Mr Cheung said, but added that its success depended on the company's cost control with its heavy exposure to steel that was its major source of raw materials. He also doubted if Dongfang could transfer the appreciation in costs to its customers, given China's policy of maintaining low electricity costs. An analyst at a European securities house said the risk for Dongfang was minimal because of the increasing market demand and the stabilising steel prices in recent months. Dongfang is one of the three major power generators manufacturers in China, with its niche in hydro generators. Its competitors, Harbin Power Plant Equipment and Shanghai United Electric Corp, specialised in thermal-electric generators. ''They are virtually in different market segments, with each having different edges,'' said the analyst with the European securities house. He also dismissed worries of triangular debts. ''Electricity is the key infrastructure industry in China which the Government will give priority in easing credits,'' he said. The performance of Dongfang's financial fundamentals has been mixed. Its trade debtors as a percentage of sales dropped to 25.7 per cent last year from 32.2 per cent in 1991. But its level of inventory rose, accounting for 13.5 per cent of sales from 5.6 per cent in 1991.