Sunday, 13 April 2008

China Zaino International Ltd



China Zaino International Ltd claims to be the No.1 backpack company in China with the largest market share of 35.8% in terms of revenue for 2006. The Company designs, develops, manufactures and sells backpacks and luggages under the "DAPAI" brand.

The IPO is managed by Sterling Coleman, underwritten by UOB Kay Hian and DBS. It is issuing 145m shares at S$0.60 each and the offer will close on April 16 at 12pm. The revenue growth figures are pretty impressive with FY2006 revenue at RMB 930 million and net profit of RMB 193 million. Based on the 9 months results for 2007, its revenue was RMB 1.04 billion and net profit is RMB 211 million (growth of more than 50%). It will be pretty difficult to get from the public tranche as 143m shares were for private placement and only 2m shares were for public offering. The Company also intends to distribute >20% of its net profit for the financial years ending 2008 and 2009. This is a decent market cap company at S$567 million post its IPO.

Financial Projections:

Assuming revenue in 2007 is RMB 1.4 billion and net profit is RMB 281 million. The EPS will be around RMB 29.7 cents or Singapore 5.95 cents. Based on IPO price of 60 cents, it is priced at 10x FY 2007 PE.

Assuming EPS for FY 2008 grow by another 30%, the EPS will be Singapore 7.735 cents. Based on the current depressed valuation matrix for S-Chips at 8-10x PE, the fair value of China Zaino will be between 62 cents and 77 cents. Based on the IPO price of 60 cents, it is very close to the lower end of the fair value range. The upside from this Company will come only if there is an upward re-rating of S-Chips in Singapore. Due to the uncertainty in current investment climate, investors will be better off not applying for this IPO as the risk reward is current not favourable.

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