Monday, 12 September 2011

Hongguo seeks $252m in HK IPO (DMG)

The news: Hongguo International Holdings, a Chinese retailer of women's shoes, aims to raise
as much as HK$1.62 billion (S$252 million) in an initial public offering (IPO) on the Hong Kong stock exchange this month to fund expansion plans.

The company, which delisted its stock from the Singapore Exchange last year, will offer 500
million shares in a range of HK$2.30 to HK$3.24 each, it said in a statement. The Nanjing,
China-based company will use 40 per cent of the IPO proceeds to expand its retail network, 25 per cent to add production and 20 per cent to buy more women's footwear brands.

Hongguo's stores included 1,015 proprietary outlets and 344 third-party outlets in China as of March 31, according to the company's pre-listing document filed to the Hong Kong stock
exchange. Net profit more than doubled to 169.9 million yuan (S$32.2 million) last year from a year earlier. Hongguo currently owns four women's footwear brands, including C.banner, and
operates one licensed brand.

Our thoughts: We understand that Hongguo was delisted from SGX on 6 May 2010 at S$0.439 per share, pricing it at around S$174m. FY09A net profit then was RMB80m and has since more than doubled to RMB170m. At HK$2.30 to HK$ 3.24, its HK IPO valuation would be between HK$4.6b and HK6.5b (or S$720m and S$1,013m), at 22x and 31x historical P/E. We do not have a rating for the company.

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