World Wide Touch Technology (WWTT), which makes touch pads and multi-media buttons, started bookbuilding yesterday for an up to HK$1.46 billion ($189 million) initial public offering in Hong Kong.
The deal, which comes at a time when market talk about the highly anticipated Agricultural Bank of China IPO and a potential AIA share sale are growing louder, will test investor appetite for smaller companies. Volatile global markets, still depressed by the European debt crisis and worries about the slow economic recovery, may also put pressure on the Hong Kong-based company's share offering.
The Hang Seng Index has fallen 6.7% and the Shanghai Composite Index has tumbled 17.7% over the past three months.
However, as a manufacturer of capacitive touching devices, which are gadgets that convert finger touch into position information for further processing, that doesn't own most of the patents for its products, WWTT comes at an inexpensive valuation.
The company is selling 861 million shares at a price between HK$1.30 and HK$1.70, which will allow it to raise HK$1.11 billion to HK$1.46 billion. The price range represents a price-to-earnings (P/E) ratio of 7 to 9.2 times, based on projected earnings for 2010, according to sources.
The offering accounts for 30% of WWTT's enlarged capital and comprises 83.3% primary shares and 16.7% secondary paper. The company could issue an additional 129.15 million shares, all primary, and the deal could stretch to as much as HK$1.68 billion, if a 15% greenshoe option is fully exercised.
Some 90% of the offering is targeted at institutional investors while the remaining 10% is set aside for retail investors. The bookbuild will close on June 14, and the price will be fixed later the same day. The shares will start trading on the Hong Kong stock exchange on June 22. Credit Suisse and ICBC International are joint global coordinators and joint bookrunners.
"The response is positive so far. Investors want to know the technology behind its new products and how competitive the new products are," a banker involved in the deal said.
In recent years, WWTT has been trying to divorce itself from its role as a manufacturer producing primarily touch pads. Instead, it plans to enhance its research and development capabilities and focus on diversified high-tech products, such as fingerprint biometric devices, wireless charging devices and plasma lighting products. The proceeds from the IPO will be used to purchase and upgrade production equipment for capacitive touch products and wireless charging products, the company said in a preliminary prospectus.
The company is also striving to reduce its reliance on its largest customer, Synaptics, a US-based manufacturer of capacitive touch pads for notebook computers. Sales of touch pads and other products to Synaptics accounted for approximately 98.9% of the company's total revenue in 2008 and 79.4% in 2009, WWTT said, but noted that the sales to this customer fell to roughly 60.5% of total revenues in the fourth quarter last year.
Currently, WWTT does not have any long-term written agreement with this major customer, but its dependence on Synaptics for touch products will continue in the foreseeable future if its product diversification cannot be achieved as planned, it said. However, the reliance is mutual since WWTT makes 60% of Synaptics' requirement for these products, a source said.
WWTT has a main production plant in Jiangmen, in the southern Chinese province of Guangdong, where it has a site area of about 125,000 square metres. The company recorded a net profit of $19.75 million in 2009.
