Li Heng Chemical Fibre IPO.

Closing date of application: 10 March 2008
Commencement of trading: 12 March 2008

Established in the 2003, Li Heng Chemical Fibre is principally engaged in the manufacture and sale of high-end nylon yarn products under their brand names "Liyuan" and "Liheng" in the PRC.

Their two production facilities in Changle City, Fujian Province, PRC, are strategically located amongst clusters of textile and garment manufacturing industries, which are their main customers, and related supporting service industries.

Their products are:


Their revenue and profit have been registering 91.2% and 93.3% growth respectively over the past 3 years.

Key Growth Plans:

1. They are embarking on expansion plans to increase their production capacity at their current production facilities from 144,000 metric tonnes currently to 257,000 metric tonnes by 3QFY2009.
2. They intend to construct a polyamide chip plant so as to reduce their reliance on external suppliers.

Key Risk Factors:

1. Polyamide chips are their main raw material, accounting for 92.8% of their total production costs - hence they are reliant on their suppliers until their plant is constructed.
   
2. Their Executive Directors will continue to hold 51% of its total share capital after the IPO, hence their actions will have a direct effect on the share price.
   

Financial figures

Intended IPO price: $0.80
No. of shares available for public offer: 10m
No. of shares available for placement offer: 390m
Total post invitation share capital: 1,700m

Note: Unaudited 2QFY2007 figures were available in the prospectus.

FY2006
Revenue: $332.4m
Profit: $93.6m
NAV: 0.0792
EPS: 0.055
EPS % Incr: 125%
PE ratio: 14.5x
Price: 0.80

2QFY2007
Revenue: $565.9m
Profit: $185.6m
NAV: 0.2156 (incl. IPO proceeds)
EPS: 0.109
EPS Incr: 98% (Est.)
PE Ratio: 7.3x
Price 0.80

Dividend policy: No fixed policy.

Conclusion:

Based on its numbers, Li Heng is comparable to the leading SGX textile stocks such as Shina Sky, Fibrechem, and Sinotech Fibre, instead of the smaller companies such as C&G and Foreland.

As such, it deserves to trade at a higher 12-15x PE. However, because it has a relatively short operating history, having only been established in 2003:

Li Heng should trade at a Fair Value of $1.30 or 12x PE only.


Probability of getting allotted for the IPO - FAIR


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.