Artini China, which designs, manufactures and retails fashion accessories, is a much smaller company than the other two and is seeking to raise no more than HK$621.6 million to HK$960.4 million ($80 million to $123 million) from its listing, which should make it easier to attract enough buyers. Having started in 1992 as an original equipment manufacturer (OEM) for international clients, the company has over the past four years been building its own brands and now generates just under half of its revenues (48%) from its own retail network in Hong Kong, China and Macau.
The company, which is wholly-owned by a husband and wife team, currently has 138 points of sale, including self-operated stores, department store concessions and eight stores operated as franchises under the Artini name. It is aiming to expand this network to more than 250 stores over the next three years through the opening of 118 new retail points in first- and second-tier cities in China. At the same time, it plans to expand the production capacity at its existing factory in Guangdong by 50% by March next year and to set up or acquire a new plant by December 2010. The Guangdong factory currently has the capacity to produce 15 million items of fashion accessories per year, including fashion jewellery such as necklaces, bracelets, earrings and rings, as well as watches, belts, sunglasses, handbags and home accessory and gift items like photo frames.
Among the key selling points, sources say, is the fact that it is a fully integrated design manufacturer. This helps to keep the costs down and is resulting in high margins. At present it has two brands: Artini, which is referred to as ôclassierö and a bit more expensive, and QÆggle, which was launched in 2006 to cater to young and trendy shoppers who, according to the company itself, are ôon the lookout for creative and unique designsö. However, sources say its aim it to develop a multi-brand portfolio along the lines of Belle International, which manufactures and sells seven different brands of womenÆs shoes.
Its OEM customers include brands like Givenchy, Nine West, Playboy and Disney. It also manufactures goods for Connexions (Asia) which is an agent for a company with licenses for various international brands of menÆs fashion jewellery.
The company is offering 28% of its share capital in the form of 280 million shares, of which 89.3% are new. The deal also includes a 15% overallotment option, which could boost the total proceeds to $142 million. The price range has been set at HK$2.22 to HK$3.43.
As usual, 10% of the deal will be earmarked for retail investors, but standard clawback triggers apply. Cazenove is the sole bookrunner.
The price range values the company at 12 to 18.5 times its projected net profit for fiscal 2009, which ends on March 31 next year. Syndicate analysts estimate that profit will be about HK$185 million, which suggests 68% growth from the HK$110 million profit expected for fiscal 2008.
Investors are comparing Artini to other manufacturers and retailers of branded fashion goods such as Hong Kong-listed watch maker and retailer Peacemark Holdings, which trades at a fiscal 2008 price-to-earnings ratio of 19.4 times and a fiscal 2009 ratio of 13.1 times (it too has a broken fiscal year that ends in March). While Peacemark manufactures and sells several different brands, it doesnÆt, however, have a brand of its own.
Consequently, analysts are also using branded goods companies like Belle and Ports Design as reference points. Belle is currently quoted at a 2008 P/E multiple of 27 times, while fashion designer Ports is trading at 26.9 times.
Among the potential concerns would be the fact that more than half of the ArtiniÆs revenues are still generated from the OEM business, which could make it vulnerable to a slowdown in overseas economies. It remains to be seen whether the domestic retail business will be strong enough to fill the gap if that happens. So far, the retail business has had a distinctly positive impact on gross margins since it was launched in 2003 and the expansion in China has also been very quick with the first store opened only in 2006.
In the nine months to November 2007, the gross margin stood at 61.6%, while the net profit margin was 18.4%. This compares with a gross margin of 35.9% and a net margin of 17.3% in fiscal 2005.
The institutional roadshow for the IPO kicked off on Monday this week and an investor luncheon û complete with a fashion show û was held in Hong Kong yesterday. The Hong Kong public offering will start on Friday and both tranches will close on May 7. The trading debut is scheduled for May 16.
Maoye raised $343 million from its IPO after pricing the deal 20 HK cents above the bottom of the range at HK$3.10 per share. Demand wasnÆt overwhelming with the institutional book close to three times covered and the retail offer 1.7 times subscribed, but observers say it was encouraging that the company, which was brought to market by Goldman Sachs, HSBC, JPMorgan and UBS, didnÆt have to price at the bottom.
E-Land, which is the fifth largest womenÆs apparel company in China and a spin-off from KoreaÆs ELand World Group, is aiming to raise between $242 million and $369 million with the help of Citi, Goldman Sachs and UBS. E-Land too will start its public offering on Friday and close the books on May 7. The price range values it at 15 to 23 times this yearÆs earnings, which at the time of the launch implied a valuation discount of between 11% and 40% versus Ports Design, which is viewed as a key comparable for this company too.
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