Yongmao Holdings IPO.

Closing date of application: 19 February 2008
Commencement of trading: 21 February 2008

Established in the 1992, Yongmao Holdings designs and manufactures a wide range of towercranes and towercrane components and accessories sold under its brands including Yongmao and Suncrane in PRC.

Yongmao is also a subsidiary of SGX-listed crane supplier Tat Hong, which will continue to own 74.4% of its total shares after its listing.

Their towercranes are sold to customers all around the world, and are used mainly in construction sites, infrastructure projects, and in the shipbuilding industry.

Revenue breakdown by market:

• PRC - 22%
• US and Europe - 29.9%
• Asia (excluding PRC) and Middle East - 48.1%

Key Competitive Strengths:

1. High barriers to entry - new entrants to this industry need a high level of expertise and experience, high capital investment, and a strong track record.
2. Other than sales, they also offer technical advice, after-sales maintenance services, and training for their customers.

Key Growth Plans:

1. They are constructing a new manufacturing facility to be completed by end 2008, which will then double its production capacity.
2. They will introduce a new product - their 5th series of towercrane known as the crawler crane - by end 2008.
   

Key Risk Factors:

1. Their business is cyclical and typically dependent on the fluctuations of the construction industry.
   
2. They are susceptible to the price fluctuations of steel and other components which are key raw materials.
   

Financial figures

Intended IPO price: $0.35
No. of shares available for public offer: 3.8m
No. of shares available for placement offer: 107.75m
Total post invitation share capital: Approx. 443.8m

Note: Unaudited 1QFY2008 figures were available in the prospectus.

FY2007
Revenue: $54.9m
Profit: $11.7m
NAV: 0.098
EPS: 0.0263
EPS % Incr: Exponential rise
PE ratio: 13.3x
Price: 0.35

1QFY2008
Revenue: $125m
Profit: $30.5m
NAV: 0.153 (incl. IPO proceeds)
EPS: 0.0687
EPS Incr: 160% (Est.)
PE Ratio: 5x
Price 0.35

Dividend policy: No fixed policy.

Conclusion:

Unlike the usual small cap china companies, Yongmao has the advantages of having a strong parent company in Tat Hong, and a business that has high barriers of entry.

Because of that, I believe that Yongmao should trade at the higher end of valuations for typical small cap stocks.

Yongmao should trade at a Fair Value of $0.68 or 10x PE only.


Probability of getting allotted for the IPO - LOW


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.