Zhongguo Pengjie Fabrics Limited is a yarns and loom-state fabrics manufacturer serving the apparel and textile industry in China. Market capitalization upon listing base on issue price of 23 cents is $81.4 million. That is just a fraction of SGX listed upstream yarn markers Li Heng and China Sky with market capitalizations of around $1 billion. Others recently listed peer like China Taisan is about $185 million.

The net proceeds to be raised are approximately $18.1 million. Almost all the proceed is earmarked for expansion plan. With about $6 million dividend was paid out by their subsidiary, Dongying Pengjie in respect of FY2007, I am wondering why they do not keep the dividend for their expansion plan instead. Good to note that the issue expenses are approximately $2.3 million.

Pre-IPO Investors have been bring in to contribute $8 million with effective cash cost per share of 19.1 cents. These groups of investors will have their cool dollar locked in for 6 months for the advantage of 3.9 cents at starting points. I personally do not think that they have a good deal. I believe they may have committed when the market have higher valuation for new listing in mid 2007.

Price earning ratio based on the Issue Price 23 cents, the historical EPS for FY2007 and post-Invitation enlarged share capital of 353,800,000 Shares is 6.3 times. If based on pre-Invitation share capital of 265,000,000 Shares, the PER tis 4.7 times. The latter is always shown in the prospectus which I presume carry no meaning to investor as that figure simply does not represent a condition exist in the real world.

For those worry about vendor sells out, not to worry. The major shareholder will still retain 74.90% stake. Upon listing, this company generally remains as a family business with tight control by Liu’s family. The market will be trading with free flow of 25.1% share only in the coming 6 months. I am a little bit worry about the liquidity of this counter upon listing.

I will avoid this listing based on the following major factor:
1. High valuation of 6.3 times PER compare to China Sky 4.7 PER and Li Heng 4.6 times PER
2. Some what analyst will suddenly jump out and start to utter word about ever increasing raw material cost of cotton eating into their profit margin yada yada.
3. Recent listing of China Fibretech (up) and China Taisan (down) have mixed results.
4. Market capitalizations too small

However, there is one important fact to highlight here: the number of new shares is 88,800,000 or Fatt Fatt Fatt, a very auspicious number for Cantonese.


9:00 a.m. on 31 July 2008 Commencement of Invitation
12:00 noon on 7 August 2008 Close of Invitation
9:00 a.m. on 11 August 2008 Commence trading
88,800,000 New Shares
2,000,000 Offer Shares (2.25%)
86,800,000 Placement Shares (97.75%)

Company website: http://www.pengjie-group.com/
Prospectus @ MAS

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Zhongguo Pengjie Fabrics Limited is a yarns and loom-state fabrics manufacturer serving the apparel and textile industry in China. I am wondering what take it so long to clear the lodgment to registration process, which is more then 7 months (Lodgment Date: 21/12/07, Registration: 30/7/08).

SGX has pretty listings of China fabric manufacturers now. The review will be up very soon.

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How many of us still believe in Analysts report?

This is taken from TodayOnline today, page B1 dated 30 July 2008:

Westcomb downgraded Lian Beng and cuts the price target from 83 cents to 25.5 cents. A wobbling cut of 57.5 cents or 69%.

Daiwa downgraded CDL Hospitality Trusts and cuts the price target from $2.07 to $1.24. A wobbling cut of 83 cents or 40%.

UBS cut YangZiJiang price target from $2.66 to $1.30. A wobbling cut of $1.36 or 51%.

The market has corrected substantially from their peak since end 2007. The companies’ valuation changed according to the market condition. However, they should have sufficient time to update the report or for the least they can do, suspend the rating depend newer development. The abrupt cut of target price above 40% is indeed a rude shock to investors who still holding on to the last research report. Worst still, holding on to the losing stocks because of an overly optimistic but outdated reports!

Even though every company will attach a long disclaimer to discharge their liability, they shall at least bear some moral responsibility to ensure that the content of the report is simply updated regularly.

Will you still believe the target price set by Analysts?

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This is not the best week for IPO.

Kencana Agri Limited is a producer of crude palm oil (“CPO”) and crude palm kernel oil (“CPKO”) in Indonesia. This is a relatively small company in comparison to Wilmar and First Resource with market capital of US$223.3 million only. The size of the land bank is 107,782 hectares but only quarter of it is planted. However, this land bank is sizeable compare with First Resources of 174,592 hectare and Wilmar of 573,401 hectares.

They intend to raise US$40.4 million from this IPO and to use 27.9% to repay the debt. The remaining proceeds are mainly for acquisition and to expand its plantation and palm oil milling capacity.

Based on the post invitation share capital of 998,044,720 shares, the price earnings ratio is 6.13 times (Instead of 798,044,720 shares pre-invitation with PER of 4.6 times as per prospectus). In last Friday closing price, First Resource is trading at S$0.985 PER 7.9 times and Wilmar S$4.10 PER 14.7 times. The valuation of Kencana seems reasonable with the prospect in place.

Sentiment towards palm oil counters has abruptly turned southwards as the price of the crude oil pulled back from the peak. Some analysts in the region have started to downgrade plantation industry. However, I believe that the correction is temporary and the oil price with eventually stabilize above US$100. This shall be sufficient to support the healthy and sustainable growth of the palm oil sector.

In conclusion, this is an IPO worth subscription. I am aware that the market sentiment is bad if not worst. However, the reasonable valuation and bright prospect for palm oil plantation sector provide a limited downside risk. Short term speculation of plantation stocks is expected.

More cool facts:
Commencement of Invitation: 9:00 a.m. on 18 July 2008
Close of Invitation: 12:00 noon on 23 July 2008
Commence trading: 9:00 a.m. on 25 July 2008
200,000,000 New Shares:
1,000,000 Offer Shares (0.5%)
199,000,000 Placement Shares (99.5%)
– 300 lots for DBS Vickers Securities Internet Placement

More relevant material:
Prospectus at MAS
CIMB-GK Securities on Wilmar on 18 July ‘08
DBS Vickers on Wilmar on 17 July ‘08


More News update:
( 21/7/08 ) The Edge reported on their publication for the week of July 21, 2008 that the dealers are saying there is no grey market and they themselves are questioning the timing of the IPO. Indeed, most believe that prices will open lower on debut. (Small note: The same publication has reported that the debuts is on ‘next Monday’, which is incorrect. The commencement date shall be on Friday, 25 July 2008 )

( 21/7/08 ) DJ MARKET TALK: Asian Palm Oil Fundamentals Still Bullish (excerpt from ccloh - Patience Market Zone)
Last week’s Massive sell down in Asian palm oil stocks occurred despite any real change in still bullish fundamentals, says Credit Suisse. “This is a reflection of investors unwinding a crowded trade, and the fact that the plantation stocks have been very resilient amidst a global equity sell down,” broker says in note. Adds, “but its bullish fundamentals have not changed. Our view is that palm oil stocks will outperform over a 12-month view because there is a real shortage of edible oils and palm oil is one of the few inflation hedges.”

(21/7/08 ) “with all the bearish sentiments affecting palm oil stocks, it will take a big effort to sustain the price above its IPO for the short term.” Another review from Singapore IPOS

(23/7/08 9:30am) The application is closing at 12:00 noon today. I will proceed as per my original plan. I have my strategic on hand which may not suitable to you. Think twice for subscription and this is not an IPO for weak heart. Caveat emptor!

(23/7/08 13:10pm) Reuters commodities http://www.reuters.com/finance/commodity?symbol=MY@PLK.1 RM3062 RM3027 now (dropped RM190 just today!)

(24/7/08 ) Balloting result is out now. Surprisingly, there is 41.2 times oversubscribed for public offer share. Seem like the bearish view in the CNA forum is over stated.

(25/7/08 4:00pm) Open at 29.5 cents below IPO price but swiftly above 30.5 cents. I have locked in the profit at 31.5 cents and 33.5 cent for the placement share. Left with some placement share and very little offer share to catch the potential oil rebound trend. Expect more upside but prefer to limit exposure.

(28/7/08 9:20am) Sold the last placement share of 50lots at 37 cents this morning. Good day!

(29/7/08 ) Migrated from ouripo.wordpress.com to settle down at Blogger

(29/7/08 3:43Pm) Current price of 35 cents translate into price earning ratio of about 7 times, about the same valuation with other smaller size caps. The valuation remain undemanding and I will keep the offering share for the time being. Please exercise caution when IPO fever is over.

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