Beijing Digital Telecom, one of China's largest mobile handset and digital product store chains, has begun taking orders from institutional investors as it seeks to raise up to $150 million from an initial public offering of shares in Hong Kong.
Amid a rush of mainland Chinese companies looking to float in the former British colony, Beijing Digital Telecom aims to sell 166.7 million primary shares priced at between HK$5.30 and HK$7.10 each.
Citi and UBS are lead-managing the deal, with DBS and Standard Chartered acting as joint bookrunners.
The base offering represents 25% of enlarged share capital but there is also an overallotment option of 25 million shares.
The international offering totals 150 million shares, while the retail tranche comprises 16.7 million shares, according to a term sheet.
Similar to other Chinese issuers looking to list this week, Beijing Digital is relying on cornerstone investor support to complete the deal. Lenovo Group, Qihoo 360 Technology, Unicom Innovation Enterprise Investment Co and TCL Communication Technology have all pledged to purchase $48.8 million worth of shares combined.
The company is being marketed at 8.6 to 11.5 expected 2014 earnings, which values Beijing Digital at between $450 million and $610 million.
Comparables, demand
Beijing Digital does not have any direct comparables in China, according to sources close to the deal, who instead use regional players in the mobile sector to evaluate the company.
One such company is Japanese firm T-Gaia Corporation, currently trading at 8.84 times expected 2014 earnings. Its shares are down 20% so far this year.
Another peer is Samart I-Mobile, a Thai distributor of electronic and communications equipment, which is currently trading at 12.61 times forward earnings. Its shares are flat year-to-date.
Beijing Digital's books remained uncovered on the first day after the institutional tranche opened, a source familiar with the matter told FinanceAsia, perhaps representing a wider shift in investor sentiment towards Chinese technology firms.
Some investors remain concerned that technology stocks in general have become too expensive after a strong run-up in price this past year, leading them to be more selective when buying technology stocks.
Still, the strong underlying growth outlook for technology companies underpins many bullish investors’ convictions and China’s mobile phone industry is no exception. The number of mainland mobile users exceeded 1.2 billion in 2013 and is forecast to hit 1.37 billion in 2014, according to consultancy firm Sino Group. Sino also estimates the number of mobile users will surpass the national population size as early as 2016 and total 1.66 billion in 2018.
This steady growth has supported solid revenue and net profit for Beijing Digital in the past three years. Revenues totaled Rmb12.8 billion ($2.1 billion) in 2013, compared with Rmb8.8 billion in 2012 and Rmb6.5 billion in 2011, representing a compound annual growth rate of 40%, according to the prospectus.
Net profits have experienced similar increases, hitting Rmb274.2 million in 2013 from Rmb249.8 million in 2012 and Rmb221.5 million in 2011.
Beijing Digital aims to use over half of the proceeds raised to expand its retail and distribution network. This includes setting up 300 new standalone outlets in China in the next two years, 150 store-in-store outlets in shopping malls by 2016, and potentially making acquisitions of regional retail chains in the Heilongjiang, Gansu and Jilin provinces, according to the company’s prospectus.
Other deals
Alibaba’s decision to list in the US may not have surprised many but it was still seen as a blow to Hong Kong. But WH Group’s high-profile flop capped off a difficult year for the city's IPO market.
Since then a number of companies have successfully floated their shares, largely due to lower pricing. This has restored confidence among both institutional and retail investors.
Chinese lingerie manufacturer Cosmo Lady and high-end women’s fashion designer Koradior Holdings both priced shares in the middle of their price ranges last week, while Jinmao Investments and Jinmao (China) Investments, a property related spin-off from the Sinochem Group, is expected to price its shares this week.
Strong cornerstone investor support appears to be contributing to the recent rebound in IPOs. Tian Ge Interactive Holdings opened its institutional books earlier this week and has already covered almost half of its book, thanks to cornerstone support, while Beijing Urban Construction Design & Development Group has secured the majority of the deal-size via cornerstone investors.
