Casual menswear company China Fordoo Holdings is the latest Chinese company seeking to float its shares in Hong Kong.
China Fordoo aims to price 120 million shares, all primary, at between HK$3.35 and HK$4.40 per unit and to raise up to $68 million in the process. The shares on offer represent 20% of the company's enlarged share capital, according to a term sheet seen by FinanceAsia.
Barclays is the deal's sole sponsor and global coordinator and is also handling joint bookrunning responsibilities with CCB International. DBS is a lead manager.
There is a traditional 90/10 institutional and retail tranche split, with a 15% over-allotment option. There is also a six-month lockup in place for controlling and existing shareholders.
The company is trading at 4.8 to 6.3 times estimated 2014 earnings and 4.0 to 5.2 times projected 2015 earnings, according to a banker close to the deal, citing the syndicate's net forecasts. This values the company at between $207 million and $272 million.
Comparable valuations, outlook
Investors have plenty of options when evaluating China Fordoo, which is being marketed at a discount to its peers.
Shanghai-based China Outfitters and Hong Kong company Cabbeen Fashion are both trading at 7 times expected 2014 earnings, with the former's shares trading flat year-to-date and the latter posting a gain of about 5%.
China Lilang in Fujian province is trading at 8.8 times expected 2014 earnings and its shares are up 3% so far this year. Quanzhou-based Fujian Nuorqi's shares are the most expensive, trading at 9 times forward earnings after climbing 1% over the same period, according to Bloomberg.
The fact there are so many listed menswear companies in Hong Kong means investors will demand a lower valuation for China Fordoo, a banker said, which is why it is being marketed at a slight discount to its peers.
Despite a highly saturated market, the issuer is touting its focus on casual menswear as a differentiator. "There's not [a lot of competition] in middle-to-upper casual menswear [in China]," the banker told FinanceAsia. "Casual menswear is a growing, new concept, and an interesting one."
According to a report by business consultants Frost & Sullivan, China Fordoo had a 2.9% share of the upper-middle menswear market in China, which accounts for a little under a third of the country's overall menswear market.
Net profits at China Fordoo have increased steadily in the last three years, with the company reporting a profit of Rmb238.5 million ($38.5 million) in 2013, a 56% increase from Rmb152.9 million in 2012 and a 125% jump from Rmb105.8 million in 2011. The company is forecasting net profits attributable to shareholders to be at least Rmb257.3 million in 2014.
Still all apparel companies in China face the growing challenge of having to differentiate themselves in an increasingly competitive market.
This will lead to more consolidation eventually, the banker noted. "Who wins [in consolidation] is anybody's guess," he added.
The proceeds from the initial public offering will be used by China Fordoo towards branding promotion and marketing, research, design and product development, repaying loans, expanding its distribution network and improving storefront decoration, among other general corporate purposes.
Recovering IPO market
Hong Kong's IPO markets have experienced a rebound in the past few weeks after pork producer WH Group's high-profile flop in April. A handful of Chinese companies have successfully tapped public markets, due to low pricing and, in some cases, cornerstone investor support.
No cornerstone investors are being sought in the case of China Fordoo due to the relatively small size of the deal.
Cosmo Lady raised $178.8 million after pricing its shares at HK$3.60 per unit, the middle of its initial range. Demand for the Chinese lingerie manufacturer was decent, with the institutional book three times oversubscribed on the first day of the bookbuild on June 16. Its shares are down 0.56% since listing on June 25.
High-end women’s fashion designer Koradior Holdings, meanwhile, priced 125 million shares at HK$4.20 a unit, also the middle of its range, and raised HK$525 million ahead of its June 27 listing. Its shares have risen 1%.
Tian Ge Interactive Holdings also covered half of its deal when books opened last week due to cornerstone support, while Beijing Urban Construction Design & Development Group secured the majority of the deal-size via cornerstone investors.
