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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