China Taisan IPO

China Taisan Technology IPO comprises of
- 8,000,000 Offer Shares at S$0.24 each by way of public offer; and
- 225,000,000 Placement Shares at S$0.24 each by way of placement

China Taisan Technology Group Holdings Limited (”China Taisan”) is one of the leading manufacturers in the PRC of knitted fabrics used for sports and leisure apparel. Knitted fabrics are stretchable and mostly used in sports and leisure apparel.

They are approved suppliers of fabrics used in the manufacturing of apparel for reputable international and local sports and leisure apparel brands such as Umbro, Nike, Puma, Anta (安踏), Kappa, Lotto, Wanjielong(万杰隆) and E•Land.

Competitive strength
- approved suppliers for reputable international and local apparel brands
- strong R&D capabilities
- established track record and reputation
- experienced management team
- strategically located in Jinjiang City
- advanced technologies and equipment in our production process
- able to manufacture products that conform to various international standards

Risk
- may be affected by major disruptions and accidents at our production facility
- vulnerable to fluctuations in polyester yarn prices
- dependent on the protection of our proprietary technical know-how
- dependent on the apparel industry
- R&D efforts may not lead to successful development and/or commercialisation of new products
- lack of long-term purchase orders or commitments from customers could adversely affect our Group’s business if demand is reduced
- dependent on certain key personnel for our continued success

Facts

NAV after post invitation 927,900,000 shares : 10.75cts
Historical EPS for 704,700,000 Shares : 5.11cts
Historical PE : 4.69
EPS for 927,900,000 shares : 3.88cts
PE base on above : 6.19
Market capitalization base on offer price : 222.7 million

Base on market cap, it is bigger than C&G Industrial Holdings which is trading at PE of 3.6 and smaller than China Sky which trade at PE of 6.0. I can say 6.19 is not very expensive, but not cheap either compare to the peers. Business wise, they are not direct comparable, since China Taisan operate in performance fabric segment.

Textile and fiber stocks have not received favourable response on SGX. Unless you have long investment horizon, oil price increase would make you nervous.

China Zaino IPO

China Zaino is offering shares at 0.60
i) 143,000,000 by placement
ii) 2,000,000 by public offer

Facts

No 1 backpack company in China with 35.8% market share in 2006
DAPAI(达派) brand named 2006 Top 12 Bag Brands in China, it also won Top 500 Asia Valuable Brand Award
Sponsor of China Gymnastics Team in coming Olympic

Competitive strength

Market leader in backpack industry
Strong brand name
Extensive distribution network
Strong product design capabilities
Commitment to quality control
Strategic location

Future plans

Increase advertising and promotion activities
Expand distribution network
Expand production capacity
Target to become top 10 luggage players in China by 2008
Increase product design and development effort and multi branding strategy

Prospects

Rising affluence of China market
Growth in demand in consumer goods
Tourism boom in China
Directors sound that the rapid growth is going to continue

Risks

Intense competition
Brand image might be affected by negative publicity
Susceptible to change in general economic condition
May not able to respond to fashion and market trend timely
Fluctuation of raw material cost
Infringement of trademark and counterfeit of DAPAI brand
Operation might be disrupted if Dabao production facilities is ordered to reallocate

Statistics

FY2006 profit growth was 130%
9 months growth of FY2007 was 66%
Gross profit margin 31.8% (increasing)
NTA 12.84 cents
Hist EPS pre IPO: 7.59 cents
Hist EPS post IPO: 6.39 cents
PE post IPO: 9.39
Market capitalization: 567 million
Dividend policy 20% of net profit.

As the FY07 has not ended, the prospectus uses FY2006 figures. However, it also provided the profit figure after 9 months into FY2007. The profit growth was 66%, I think we can safely assume that it might be able to achieve 40% profit growth in FY2007. The EPS would then become 8.95 cents and the PE base on offer price would become 6.7.

Base on the industry outlook presented in the prospectus, the company is piggy back on the rising consumption in China and the increase of household income. The rising disposable income is set to create domestic travel boom and drive the demand for backpack and luggage. According to Frost & Sullivan, bag consumption in China was estimated to be approximately USD2.4 billion in 2006. The China bag industry is expected to continue to grow at a rapid pace with a CAGR of 20.0% between 2007 and 2009.

The report also shows that DAPAI, the number 1 brand commands as much as 35.8% market share compare to number 2 's 4.3% market share. This shows that it is not only the number 1, but also the strongest player. They are new to luggage market and the brand is not found in the top 10 luggage player list.

Since the company is market leader, industry trend is favourable and with reasonable valuation, it is worthwhile to subscribe. The public offer size is small, chance of getting is low.

China Eratat Sports Fashion IPO

China Eratat Sports Fashion is offering new shares at 0.30
a) 8,000,000 shares to public
b) 155,000,000 shares by placement

The company is a branded sportswear enterprise based in Fujian Province, PRC, with a strong focus on brand management, product development and quality. They are principally engaged in the design, manufacture and distribution of sports footwear, and the design and distribution of sports apparel, which are mainly marketed under proprietary brand, ERATAT (鳄莱特 ).

The products are categorized under two segments – sports footwear and sports apparel. They have engaged Wong Lee Hom, a well-known international artiste as brand ambassador since 2002. They have also won some awards like 2006 China Best Public Image Brand and 2006 China Top 100 Footwear Producing Enterprise.

Competitive strength

(a) Established track record and reputable brand
(b) Extensive distribution network across the PRC
(c) Strong emphasis on quality products
(d) Strong product development capabilities
(e) Experienced, dynamic and committed management team

Industry prospect

(a) Increasing consumer consumption and sophistication in the PRC, particularly in the mass-market consumer segment
(b) Rising emphasis on sports and leisure-centred lifestyles in the PRC
(c) Strong growth potential of our ERATAT brand and products

Future plans

(a) Expand production facilities
(b) Expand market presence and distribution network
(c) Strengthen the brand through promotion and marketing
(d) Enhance product development
(e) Strategic tie up and investment

Key risks

(a) Highly competitive sports fashion footwear industry
(b) Reliant on the brand ERATAT
(c) Infringement of intellectual property
(d) Retailers of ERATA products face rising competition for retail space
(e) Dependent on PRC distributors
(f) Labor shortage and rising cost

Statistics

NAV after ipo : 13.51 cents
Hist EPS on 290,029,357 shares : 2.7 cts
Hist PE : 10.8
Hist PE base on post ipo 414,912,514 shares : 15.9
Market capitalization (ipo price 0.30) : 124.5 million
Gross profit margin for FY07 : 28.4
Dividend policy not less than 20% of net profit

1H2008 profit is 25% increase compare to 1H2007, assume EPS growth at 25%, forecast EPS is 0.024. The forecast PE is 12.7.

China Eratat Sports Fashion is a new comer that would join the growing list of china sport company listed on SGX. The current listed peers are China Hongxing and China Sports.

By its own right, the company has a reputable brand and is in a fast growing industry. However, if we look at the track record, the company has achieved significant growth on FY2007 only. It is unclear to me that how the future growth rate would be.

It is also fair for us to compare the company against China Hongxing and China Sports since they all operate in the same market segment. I should focus the discussion on 3 aspects – PE, margin and market cap.

China Hongxing: price 0.61, eps 0.035, PE 17.4x, gross margin 41.1%, market cap 1.8billion
China Sports: price 0.91, eps 0.106, PE 8.6x, gross margin 22%, market cap 306mil

Hongxing is in its own league in terms of PE, margin and market cap. ERATAT is much a smaller player compare to both, or maybe more appropriate to compare against China Sports. Even looking at forecast number, ERATAT 12.7 vs China Sport 8.6, I am hesitate to subscribe.

In the industry discussion, the prospectus cited that

Sportswear in China encompasses apparel, shoes and accessories. China’s sportswear market in 2006 is estimated to be worth between US$4.13 billion to US$5.69 billion. We estimate the Chinese sportswear market to grow by 18.6% to 23.6% between 2007 and 2010. The market size by 2010 is expected to be worth between US$8.16 billion to US$13.26 billion.

Nike, Adidas and Li-Ning are the top three players in the Chinese sportswear market. They collectively occupy between 28.0% and 37.0% of China’s fragmented sportswear market. The remainder comprises approximately 200 smaller players. These players produce sportswear as original equipment manufacturers and original brand manufacturers. There are more than 600 different brands of sportswear in the Chinese market.

This shows that the competition is very intense. I think only the strong brand would survive and thrill.

In the competition discussion, it was highlight that there are two market segments

1.Global brand market segment which brands like Nike, Adidas occupied and targeting top tier cities
2.PRC leading brand market segment which have Li-Ning, Anta, Kangwei, Hongxing Erke and XTEP which mainly targeting second to third tier city

It is interesting to evaluate the competition position and brand equity of each China sports brand and try to identify who is the rising star. Once I have time, I might do some research on this.

Old Chang Kee IPO

The first IPO of the year comes from Singapore local company Old Chang Kee. Key information taken from IPO prospectus.

Competitive strength

• Established household brand name

• Extensive network of retail outlet

• Diversified customer base

• Experience management team with local food industry

• High quality standard

Use of proceed

• Expand the overseas operation

• Increase and refurbish local outlet

• Expansion and working capital.

Key Risk

• Food disease outbreak

• Revoke of Halal cert to factory and outlet

• Increase of rental charge and lease

• Business is labour intensive

• Negative publicity which affect the brand name

• Change of consumer taste

IPO details

Price at 0.20 a share
Pre IPO share : 68,400,000
Post IPO share : 93,400,000
Historical EPS : 4.44 cts
Historical PE : 4.5
PE after dilution : 6.15
Market cap 18.7 million

They do not have fixed dividend policy.

My take

Old Change Kee is quite a well known food company in Singapore. Whenever I walked pass their store, there seems to be a good queue for their food. In recent years, they are selling more than just curry puff. The key draw to consumer is the deep fried food like sotong ball, fish fillet etc. I was never a fan of Old Chang Kee, because I dislike their curry puff skin thickness. It is like eating flour than curry puff. However, the business seems good all the time. So, the competitive strengths are valid.

I think the key risk to the business in coming years would be the rental cost and labour cost. Since most of the mall are already in REIT, they would want to increase the rental aggressively, thereby squeezing the players like the curry puff maker. Labour is also another big headache. However, I recalled that I saw their advertisement that they hire retiree for part time work. So, this risk could be mitigated.

The expansion plan is simple by aiming both local and overseas market. There should be room to grow in the local market, however, the opportunities are limited. When you go to the shopping mall, the snack stall competition is so keen nowadays. Take a look at the basement of Bugis Junction, there are so many small store selling snack. Expanding in overseas market is also a tricky business, as new market might not like the taste of curry puff or deep fried food.

The IPO is priced at PE 6.15 after share dilution. I feel that it is cheap. But I think possible reason could be lack of investor interest. Therefore, they are willing to price at this level. It is your call whether to buy or not, since it is not expensive. Only 1000 lots up for grab for retail investor. Chance of getting it is extremely low. Want to waste the commission?

Beside that, I am not so convinced about the growth story. It won't be a smooth journey. Local F&B players were not doing well these few years. Just look at the share price of Thai Village, Tung Lok, Apex pal, Soup Restaurant. Sure, there is money to be made. But, F&B is not known for delivering strong growth. With the exception of BreakTalk. After going down soon after IPO, Quek is making a decent come back with diverse business and more outlet expansion.

China New Town Dev IPO

China New Town Development is making an IPO on SGX. The company would offer 12,000,000 shares to the public at 0.83 per share.

From the prospectus,

China New Town Development is a leading new town developer in the PRC. Working
closely with local governments, we are principally engaged in the planning and
development of large-scale new town projects of at least 5 million square metres. We
focus mainly on developing new towns that are located in the suburban areas of China’s
major cities.

- One of the fi rst privately-owned companies to plan and develop new towns in China
- Distinctive business model
- Close cooperation with local governments
- Diversifi ed sources of revenue
- Experienced management team

Growth strategies
- Enhance geographical diversity of our business
- Adhere to international best practice
- Dedicated to improving our profi tability
- Cooperate with leading international property development and management companies

Risk
- Neither we nor our joint venture partners control the timing or the price of the sale of land use rights in new towns we develop
- Our business operations are subject to extensive government regulation
- We do not anticipate generating positive cash flow during the construction period of our projects and will need further financing for future projects
- We face increasing competition that could adversely affect our business and financial position

>> Looking at the offer size to public, there should be high chance to get the IPO. Judging from the institution investor demand, this IPO could possibly do well during the opening. However, given the current uncertainty in the market, it is possible to go the other way also, given the high valuation attached to it. It would be worth subscribing if you have the holding power.

ARA IPO

SINGAPORE, Oct 24 (Reuters) - Real estate firm ARA Asset Management will price its $190 million Singapore initial public offering late on Wednesday and the order book is fully covered, sources close to the deal said.

"It is fully subscribed and there is no price sensitivity," a source told Reuters, adding that the deal would likely be priced at the top of an indicative range.

>> This seems to be a hot IPO. Should be going up strongly on first day.

23,300,000 Shares to the public in Singapore, including 8,300,000 Shares (the Reserved Shares) reserve for the directors, management, employees and business associates of our Company, our subsidiaries and associated companies who have contributed to our success

>> There are 23,300 lots up for grab and the underwriter would be able to do over allotment. Meaning that there should be a fair chance of getting it.

Our business comprises three primary segments:
- REIT management
- Private real estate fund management
- Specialist equity fund management and corporate finance advisory services

Investment highlight:

Proven expertise and track record in real estate fund management
- Pioneer in the establishment of REITs
- Growth in REIT real estate assets under management
- Strong performance of the REITs we manage
- Growth in funds under management
Attractive business model
- Diversified and complementary strategies
- Stable income
- Growth potential
- Strong financial performance
Strong team and relationships
- Experienced team
- Strong relationship with the Cheung Kong Group
- Established relationships with institutional investors

>> They have a unique strength, but competition is strong too. I think I read some weeks back, Calpers(California Public Employees' Retirement System) is also one of the investor. I think this say something about the management skill.

China Oilfield Tech IPO

There is a new IPO coming up next week. Some of the points were taken from the web or prospectus.

SINGAPORE (Thomson Financial) - China Oilfield Technology Services Group Ltd, which provides engineering services to oil exploration companies in China, said it is launching its Singapore initial public offering (IPO) of 211.61 million new and vendor shares at 60 Singapore cents each on Monday.

Invitation in respect of 211,607,000 Shares of HK$0.50 each comprising 127,500,000 New
Shares and 84,107,000 Vendor Shares as follows:-
(i) 3,228,000 Offer Shares at $0.60 each by way of public offer; and
(ii) 208,379,000 Placement Shares at $0.60 each by way of placement,
payable in full on application.

>> There are 3228 lots up for grab. A small offering.

We have a wide range of tertiary oil recovery products, which can
be divided into three segments:
(i) Enhanced Oil Recovery;
(ii) Environmental Protection; and
(iii) Energy Saving and Others

>> In summary, the oil extraction consists of 3 phases. Their product operate in the tertiary phase which allow the additional 20 to 30% of oil to be extracted.

Favourable development trend for tertiary oil recovery technology

• Daqing Oilfield Co., Ltd. plans to extend the use of tertiary oil recovery technique in more than 80% of its oil extraction sites in Daqing oilfield in the next 15 to 20 years
• Other PRC oilfields, such as Shengli, Changqing and Xinjiang, have gradually expanded the scale of their tertiary oil recovery processes as their oilfields approach maturity

>> If this trend is right, not distorted by the news, this would be a powerful trend. Looking at every kind of cycle, people enter at the first phase would enjoy good growth going forward.

Future Plans

• Enhance our R&D capabilities
• Expand our production capacity
• Expand our sales and marketing network in the PRC and overseas markets

>> I guess the expansion plan is quite standard. Most of the new IPO plan to do similar things. The pity thing is there is no discussion on the company position in the industry. How do they rank compared to the competitor?

IPO price
60.00 cents (equivalent to 299.34 RMB cents)
NAV
after adjusting for the estimated net proceeds of the Invitation and based 91.36 RMB cents
on the post-Invitation enlarged share capital of 728,595,000 Shares
PE
Historical PER based on the historical EPS of our Group for FY2006 assuming 18.69 times
that the Service Agreements had been in place from the beginning of FY2006

>> It is a bit pricey. Consider they didn't take the share dilution into the PE calculation. However, if they can achieve the earning growth as past few years CAGR 135%. This should not be a problem.

Risk

• We are dependent on our major customers, which are the operating units of Daqing Oilfield Co., Ltd., a wholly-owned subsidiary of PetroChina
• Our growth and prospects are dependent on our research and development capability
• We are dependent on our patents
• We are dependent on the protection of our proprietary technical know-how
• We are dependent on our management team
• We are dependent on qualified professional staff
• We are dependent on the PRC oil industry
• ...
• We may be required to pay penalties or liquidated damages for failure to meet delivery deadlines

>> The major risk here is dependent on single customer. Having said that, once they can get more customer on board. The market should re-rate them with higher PE.

Summary

The company business do sounds interesting and poses for strong growth in the coming years. Forget about the initial valuation. Base on small offer size, current strong oil and gas sector play and good IPO sentiment. The new listing should do well on the first day. Subscribe! Although we all know that it would be very hard to get, but the chance should be higher than strike toto.