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Tuesday, 18 September 2007

Fuxing China Group Limited

(IPO booth at Raffles Place...)

Fuxing China is a manufacturer of zipper slider and zipper chains in the PRC and the products are sold mainly to local manufacturers of apparel and footwear products, camping equipment, bags etc. It is one of the few vertifcally integrated players in the PRC zipper industry and has a diversifed customer base of over 900 customers. The prospectus is here.

It is the second zipper company to list here after CMZ. The details are:

Public offer: 5m shares
Placement shares: 170m shares.
Price: $0.46
Issue Manager: SAC Capital
Underwriter and Placement Agent: UOB Kay Hian
Closing Date: 20 Sep 2007

Sales for 2006 - RMB 716.412m
Net profit for 2006 - RMB 155.609m
EPS (based on post IPO shares) - RMB 20.1 cents
EPS (based on SGD/RMB 0.2) - Singapore 4.02 cents

The shares are priced at 11.44x historical FY2006 PE.

Sales for Q1 2007 increased by 22% while net profit for the same quarter increased by 130%.
Assuming sales for FY 2007 increased by 25% and net margin of 22% is achieved, the net profit and EPS for FY 2007 will be RMB 197.013m and RMB 25.4 cents or Singapore 5.08 cents. That will priced Fuxing at a forward PE of 9x.

Assume EPS grow by another 25% in FY2008, EPS for FY2008 willl be 6.35 Singapore cents. Currently CMZ is trading at low PE multiples of 7-10x but since Fuxing is a fundamentally better than CMZ , it deserves a better premium over CMZ. I will give it a fair value of 8-10x FY2008F EPS and based on that valuation, the implied fair value for Fuxing will between 50 cents to 63 cents. A stag to the IPO price and another hit and run IPO counter. 2 Chillis rating.

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