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Tuesday, 19 August 2008

Qian Feng Fabric Tech Limited

Not another "fabrics and nylon" company again?!.... it seemed like the IPO consultants are running out of ideas and can no longer find more 'interesting' companies to list in Singapore. C&G Industries, China Sky, Li Heng, , China Fibretech, Zhongguo Pengjie Fabrics, to-be-listed Qian Feng... (somewhat similar to the shoes situation.. China Hongxing, China Sports, China Eratat, soon-to-be-listed Sports Asia) and i can tell you the reasons later.

Due to a new ruling by CSRC in China some time back, Chinese local PRC companies are no longer allowed to be listed overseas unless they are already restructured prior to the ruling. All overseas listing must now get the approval from CSRC but as of todate, no new PRC companies have been approved for overseas listing. As a result of this new ruling, the pipeline of companies that are coming onboard in Singapore are slowing down and drying up. As most of the 'restructed' (already WFOE) companies can be found in Guangzhou/Fujian province, all the IPO consultants from Singapore are now heading towards Xiamen to look for deals. As a result, you can see companies from the simliar sector from the same region all flocking to Singapore (as in the fabrics & shoes companies). Ok, now back to business...

Qian Feng Fabric Tech Limited ("Qian Feng") is offering 100,565,208 New Shares and 22,434,792 Vendor Shares at 20 cents each of which 1m is to the public and the rest via placement. Qian Feng is an integrated manufacturer of quality functional knitted fabrics. Its products include fabrics used in garment and apparel, shoe, luggage and bags. Its revenue for FY 2007 is RMB 326 million and net profit is RMB 86 million. The offer will close on 25 Aug 2008 at 12pm. The market cap is S$98 million based on post ipo shares of 490,002,148 shares.

There are 2 tranche of Pre-Ipo investors, the 1st tranche invested in Dec 2007 paid 10.4 Singapore cents (around 48% discount to IPO price) and 2nd tranche invested in Jan 2008 paid 15.6 cents (around 22% discount). However, the entire pre-ipo investors also received S$1.4m as cash compensation based on the investment agreement. In this regard, the pre-IPO investors cost is around 10 cents per share on average (50% discount).

The audited EPS for FY2007 based on post-ipo shares is Singapore 3.48 cents and that translate into a historical PE of 5.7x. Assuming the EPS for FY2008 continue to grow by 25%, the EPS will be Singapore 4.35 cents and that translate into a PE of 4.6x.

China Sky and Li Heng is trading at 4.3x and 4.7x and China Fibretech is at 6.6x PE. Assuming a fair value of between 4-6x PE under such depressed markets, the fair value range is 17.5 cents to 26 cents. Qian Feng is fairly priced for this IPO and will not provide significant upside. Investors might as well stick to proven and bigger companies like Li Heng and China Sky.

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