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Sunday, 16 December 2007

JES International Holdings Limited

The Company is a major PRC shipbuilding group with production facilities capable of producing different types of vessels. It produces bulk carriers, containerships, ocean engineering vessels (mainly crane barges for offshore oil sector and offshore construction building works) and RO/RO vessels. Our customers include major shipowners based in Europe, Canada and Asia, including the PRC.

Public offer of 16.195m shares at $0.67 per share.
Placement offer of 356.94m shares at $0.67 per share.

2006 results:
Revenue US$159.7 million
Net profit US$17.3 million

2007 1H results:
Revenue US$77.8 million
Net profit US$11.2 million

Assuming full year profit is doubled to US$22.4m, the EPS will be US 1.96 cents or Singapore 2.83 cents. Based on IPO price of S$0.67, it is priced at 2007 PE of 23x. Assuming EPS grow by another 30% in FY2008 to Singapore 3.68 cents, based on PE range of 20x-25x, the fair value will be between 74 cents and 92 cents.

While i certainly like this sector (ship building sector) in China, it is unusual to see the "Authority" requesting the following risks to be highlighted. Perhaps they know something which we dont!??! Anyway, the bigger rival listed here is Yang Zi Jiang and it is trading at around 35x 2007F PE.
The 'warning' on the prospectus is listed below and it is a serous issue if they are unable to deliver the vessels to its clients on time!

At the request of the Authority, we have been asked to prominently highlight the following specific risks to be considered in connection with an investment in the Offering Shares:

Because our existing shipyard is operating at full capacity, we may not be able to successfully coordinate the construction of vessels to meet their scheduled delivery dates if the New Facility is not constructed within the scheduled time or at all.

Our contemplated construction of the New Facility is subject to certain conditions and may not be consummated within a reasonable time or at all. If the New Facility is not completed as planned, we could be exposed to potential liabilities under contracts for vessels intended to be constructed at the New Facility if such contracts become effective.

We have no control over the purchase price in relation to the contemplated acquisition of the land use rights in relation to the 405 mu Land as the land use rights are subject to a listing-for-sale process, and if such purchase price is higher than we expected, our business, financial condition, results of operations and prospects could be adversely affected.

Our Audit Committee may find it difficult to reject the acquisition of the 405 mu Land on which we intend to construct our New Facility, even if the purchase price is significantly above our budget, as there may not be suitable alternative land available in the vicinity of our existing shipyard.

As a result of the above, an investment in the Offering Shares should be considered highly speculative in nature. See “Risk Factors — Specific Risks” herein. See also “Risk Factors” herein for a discussion of other factors to be considered in connection with an investment in the Offering Shares.

The pre-ipo investors look rather interesting with Tommie Goh, Gay Chee Cheong, Chew Hua Seng and other prominent pre-ipo investors group and fund in this company, however, the bad IPO timing and big float is a serious concern here even though the grey price is heard to be +10 cents.

I will give it a miss for now since i am just back from vacation and not "in-tune" with the market right now but i give it a 2 Chillis rating due to the high valuation of its listed rival (Yang Zi Jiang) and the good growth prospects for the ship building sector in China.

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