SHANGHAI Haixin is set to issue 35 million B shares through Sun Hung Kai Securities, but one should not get too excited about the prospects of successfully applying for any shares, as they are apparently going to be very scarce. Shanghai Haixin B shares have been priced cheaply enough and the institutional presentation has been made already, but it is said that almost no shares will be made available. What looks like an institutional issue may just stay with the in-house clientsof the issuer. According to Sun Hung Kai Research, Shanghai Haixin Co, which incidentally I have not visited, is one of China's largest manufacturers of lining and stuffing (plush) for soft toys. The company is also said to be expanding directly into toy manufacturing itself. Shanghai Haixin has a 20 per cent share of the plush market at present, although the number of producers has increased dramatically over the last six years, by about 20 times. Shanghai Haixin has apparently been able to increase its profit margins from 15 to 26 per cent over this period, despite the competition, by altering its product mix and by reducing operating costs. To stay ahead of the game, the company also plans to import advanced printing and dyeing equipment. China's exports of soft toys to the United States have been rising strongly by 38 per cent per annum in recent years and demand may pick up still further with the expected recovery in the United States' economy next year. Set against this is the poor image produced by the horrendous Asian toy factory fires recently that occurred in Shenzhen and Bangkok, neither of which had anything to do with Haixin but may be used by pressure groups in America to try to influence consumer demand away from Asian soft toys. The new issue statistics as set out in the broker's research put Shanghai Haixin B shares on a low prospective price-earnings ratio of 8.1 for 1994 and only 6.8 for 1995. Net profits are forecast to rise impressively from 46 million yuan (about HK$62 million) last year to 71 million yuan this year. Profits of 97 million yuan and 115 million yuan are forecast for 1994 and 1995 respectively. The new issue proceeds will be used partially to purchase dyeing and printing machines, but will also be used to buy equity stakes in related businesses. This is a practice not universally welcomed by institutional fund managers, who tend to prefer pure business operations. Because of the tightness of this issue, coverage of Shanghai Haixin's business by major stock brokerages may be limited. Duncan Mount is a director of the China Fund and managing director of CEF Investment Management Limited, which may have an interest in and/or hold positions in securities mentioned above.