Shenzhen-based electronics manufacturer Nam Tai Electronic & Electrical Products (NTEEP) priced its IPO at HK$3.88 per share on Thursday, just above the halfway point of its HK$3.55 to HK$4.20 indicative range.
Specialists say the deal performed well, considering volatility generated by possible interest rate rises in the US and China, plus a possible slowing in China's surging growth. "Investors know this company is a top-end company, with high earnings growth and is working with some of the top names in the business, such as Sony Ericsson, Sony Playstation, Canon and others," comments one observer.
The sale of 200 million old shares via sole sponsor HSBC raised HK$776 million ($99.5 million), all of which will go to parent company, New York-listed Nam Tai Electronics. Representing 25% of issued share capital, the deal saw 90% placed with institutional investors and 10% with retail. Books for both tranches are said to have closed about four times oversubscribed.
Geographically, 45% of the demand came from Asia, 35% from Europe and 20% from the US.
Out of a total of 80 investors, 10 of institutional investors applied for more than 10% of the deal. Of those ten, some asked for as much as 20% of the deal, says one specialist.
A small portion of the institutional tranche came from high-net worth individuals.
"During the road show period, the markets were closed one day, went down six days and went up only one day, so the deal did pretty well," says one specialist. "A lot of the institutional investors liked the equity story and the management. The quality of the book was good."
The deal was priced at a price/earnings level ratio of 18 times 2003 earnings and roughly 12.5 times 2004 earnings, based on market estimates. Hong Kong listed Varitronix, a manufacturer of LCD displays, and regarded as one comparable to the company, trades at 13.25 04 earnings.
However, specialists say this was a side issue.
"A lot of comps were being bandied around in the early stages," says one. "But at the end of the day, it was bigger macro issues that dominated and a case of simply looking where the last deal priced."
One specialist highlights Solomon Systech, a chip design company, listed at around 13 times 2004 earnings a few weeks ago. "The markets have come down sharply since then, so a discount was inevitable," he points out. "The only question was: how much of a discount."
The benchmark Hang Seng Index has come down from touching 14000 points in March to hovering at just around 12,200 at close of business Thursday. Investors had to consider a strengthening US dollar, higher US interest rates and possible slowing growth in China.
However as one fund manager comments, "The discount the company had to offer was limited by the strong growth it has shown, the fact it has almost no debt and doesn't sell inside China. Since it bills and pays in US dollar, the effect of US rate and currency changes are neutral."
NTEEP makes wireless headsets, phone cameras, mobile phone flashes, add-ons to video game consoles, educational toys such as electronic dictionaries, calculators and assorted other optical devices. "This is not just another electronic systems manufacturing company. It's vertically integrated and offers a high level of technological prowess. As a result, it works with top names in the business," says one specialist.
Turnover jumped 32% in 2003 to $128.8 million from $94 million the year before, while net earnings have soared from $4 million in 2001, to $8 million in 2002 and $22 million last year. This year earnings are forecast to be over $30 million, says one fund manager.
The company has three other units, one of which is listed in Hong Kong - LCD panel manufacturer JIC. This is trading at 23.3 times 2003 earnings. The others are contract manufacturer Zastron Electronic and Shenzhen Nantek. The latter does software design and consultancy.
"The parent eventually wants to list all its units to make them transparent and accountable, while at the same time allowing them to leverage off the marketing strength of the parent," concludes one specialist.
Last year, parent company's Nam Tai Electronics' net profit doubled to $43.8 million for the year ended last December, up from US$20 million in 2002. Revenue soared to $406.3 million from $236 million.
NTEEP lists on April 28.
