Wednesday, 10 March 2010

Qingmei Group Holdings Limited

Qingmei Group Holdings Limited ("QM") is offering 184m shares at 31 cents apiece, of which 160m are new shares and 24m are vendor shares.  It comprise 2m via public offer and the rest via placement. The IPO application will end on 15 March 12pm and will begin trading on 17 March 2010.

QM is principally engaged in the original design manufacturing of mid-end and high-end sports shoes soles under its own trademarks and brandname.

Its key customers are shoe brand owners such as Double Star, Jin Shu Wang, Kang Ta, Qiao Dan, K Birad, 361, Xtep and ERKE.

QM generated revenue of RMB 294m in FY 2007 and grew it to RMB 833m in FY2009. Net profit during the same period rose from RMB 47m to RMB 182m. Assuming the service agreement was in place in FY2009 and based on the fully diluted shares of 640m, the EPS is Singapore 6.08 cents. Based on the IPO price of 31 cents, it is listing at a historical PER of 5.10x.  The market cap at listing is S$ 198.4million.

The company intends to distribute not less than 30% of its net profit in FY2010 and FY2011. Assuming the "worst case" scenario of same profit, the dividend per share will be 1.82 cents and based on the IPO price of 31 cents, the projected yield is at least 5.8%

The pre-IPO investors bought at around 17.8 cents and one of them, CIM XX is cashing out half its shareholdings at the IPO and that will bring its shareholding down to 3.75% (which will then avoid the disclosure post moratorium). CIM XX is basically an investment vehicle managed by "David & Han" team from UOBKH.

It is tough to project FY2010 performance without having direct access to the management. However, having said that, it is likely that the company will grown in FY2010. I will assume a 20% growth rate which implies EPS for FY2010 will be 7.3 cents and that translate into a forward PE of 4.24x.

There are no "similar companies" listed on SGX but China HongXing (one of its customers under ERKE brand) is listed here. It is trading at 14x historical PE. China sports is trading at 4x and China Eratat at 2x.

Personally, i think QM is fairly priced for a S-Chip IPO as investors are "risk-averse" to S chips. The shoe industry is not exciting as China Hongxing announced a poor set of results with margins being squeezed. I would give this IPO a miss.

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