XinRen Aluminium Holdings Limited

XinRen Aluminium Holdings Limited is offering 198m New shares at $0.55 per share where 186m shares will be via placement and the rest for the public (12m).  There will be over-allotment option and DBS will be the stablisation manager.  The IPO will close on 25 Oct at 12pm. The Company has 3 business divisions, namely Smelting, Fabrication, Trading and Marketing. It is a leading producer of primary aluminium in the PRC. The IPO proceeds will be used to increase the capacity (55%), strategic investments (15%)  and working capital (30%). The market cap implied by the IPO price is S$604m.

From FY 2007 to FY 2009, revenue grew from RMB 3.3 billion to 4.26 billion and net profit flucutate from RMB 142.9m to RMB 306 million during the same period. For the 3 months ended 31 March 2010, revenue grew by 123.3% ro RMB 1,269.1m and net profit touched RMB 150.3m versus a loss in the same quarter in prior period. In Singapore dollars term, the revenue for 2009 was S$852m and net profit was S$61.2m. The EPS for 2009 based on fully diluted shares post IPO will be Singapore 5.6 cents. That translates into a historical PER of 9.8x.  

If you remember, Ferrochina fell under its debt. As of 31 Aug 2010 adjusted for IPO proceeds, Xinren has S$124.8m of cash, debt of S$407.7m and equiy of $226.5m. Investors would do well to watch the debt levels of this company closely in case there is any refinancing risk for its loans and the "joke" is that the all the loans and borrowings are classified under current liabilities. In other words, if the banks want to withdraw their facilities, they would have difficulty repaying the debts! In addition, short term loans usually bear a higher interest rate that long term loans, the company would do well to 'refinance' its short term borrowings into loans with longer term tenure that has a lower interest rate!

The NTA per share as of 31 March 2010 (assuming IPO proceeds is received) is $0.19 per share and that translate into a price-to-book ratio of 2.89x. Looking at the comparables listed in HK (Aluminium Corp of China and China Zhongwang Holdings), they are trading art forward 2011 PE of 25x and 5x and PB of 1.86x and 1.67 respectively. Assuming EPS grow by 20% in FY2010, the EPS will be Singapore 6.72c. (This prospectus is "tough to read". The information is all over the place). At 15x PE, the fair value of XinRen will be around $0.84. This will be a hit-and-run counter for me unless the company can address some of the concerns i have.