Friday, 2 October 2009

Ziwo Holdings Ltd




















Ziwo Holdings Ltd is "different" from most recent IPOs in that the vendors are cashing out big time (in full to be exact)!  The company is offering 121.512m shares consisting of 60m New shares and 61.612m Vendor shares. Ziwo is engaged in the research and development, manufacture and sale of SBR and other foamed materials. A closer look at the vendors throw out some interesting shareholders such as a Venture Capital firm, an ex-minister, a market player who recently took stakes in many small caps, a partner in an accounting firm, among others.

Revenue for FY 2008 is RMB 286.8m and net profit is RMB 57.7m. The EPS for FY 2008 after accounting for service agreement and new share base is 4.60 cents. Based on the IPO price of 23.5 cents, that translate into a historical PE of 5.1x.  The market cap is S$58.56m. Q1 2009 revenue stands at RMB 76.9m and net profit at RMB 22.7m. The Q1 net profit is actually very impressive and is already 40% of FY2008 full year profit. Assuming a more conservative 50% growth in profit for FY2009, the EPS for FY2009 will be 6.9 cents and with a fair value range of 4-7x PE will translate into a price of 28 cents to 48 cents.

It is interesting to note that Group I investors that came in April 2008 paid 11.75c while Group II investors that came in Feb 2009 paid 8.03 cents. I guess that is because Group II investors came in at the peak of the Financial crisis and is rewarded for taking that risk. It is also interesting to note that all the pre-ipo investors are cashing out at the IPO. Do you really believe that the underwriters will allow the pre-IPO investors to 'cash out' big time"?

It will certainly be interesting to see how the shares are being placed out at IPO and who they are placed out to. In my personal view, this is an innovative way to avoid the usual 6 to 12 months moratorium for the pre-IPO investors. By "selling out" at IPO and then getting friendly parties to underwrite and subscribe for the shares, the vendors effectively strike 2 birds with one stone. First, they are able to avoid moratorium on the remaining shares and second, they are able to control who the shares are placed out to and thereafter, perform some post IPO support to the shares.

This stock will be interesting to watch at IPO and worth a stag, barring any major crash in the US and local market.

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