China Zaino IPO.

Closing date of application: 16 April 2008
Commencement of trading: 18 April 2008

Established in 1995, China Zaino is the Number One backpack company in China, with the largest market share of 35.8% (in terms of 2006 revenue). They also began manufacturing luggage in September 2007.

Company background

• Their Dapai brand products is sold through distributors in over 3,000 concessionary retail outlets across 26 provinces / cities in PRC.
• Their primary market is the mid-range mass market consumer segment, thus their products are retailed at an affordable price range of RMB$50 - RMB$300 for backpacks and RMB$300 - RMB$700 for luggage.
• They introduce approx. 200 new designs annually to suit different consumers' tastes and needs.
  

Key Growth Plans:

1. To expand their distribution network to more than 4,000 concessionary retail outlets by end 2008.
   
2. To aggressively expand their production capacity by 1) purchasing new plants and machinery, 2) increasing the number of production staff and shifts, 3) acquisition of synergistic companies, and 4) construction of new production plants.

Growth Prospects

The PRC backpack and luggage industry is at the early to mid stage of the industry life cycle, and is expected to grow at a CAGR of approx. 19.4% between 2007 and 2009.

Financial figures

Intended IPO price: $0.60
No. of shares available for public offer: 2m
No. of shares available for placement offer: 143m
Total post invitation share capital: Approx. 945m

Note: Unaudited 3QFY2007 figures were available in the prospectus.

FY2006
Revenue: $182.9m
Profit: $38m
NAV: N.A.
EPS: 0.0402
EPS % Incr: 100%
PE ratio: 15x
Price: 0.60

3QFY2007
Revenue: $273.6m
Profit: $55.4m
NAV: 0.1284 (incl. IPO proceeds)
EPS: 0.0586
EPS Incr: 46% (Est.)
PE Ratio: 10.2x
Price 0.60

Dividend policy: They intend to distribute not less than 20% of profits as dividends for FY2008 and FY2009.

Conclusion:

Based on its numbers and that it is the top backpack company in China, China Zaino can be considered as a blue chip S-Share. If not for the current weak market sentiment, this is one of those growth stocks that could easily trade well over 20x PE.

As such, I believe that it should be valued higher than the average manufacturing stock's PE of 12x, thus:

China Zaino should trade at a Fair Value of $0.88 or 15x PE only.


Probability of getting allotted for the IPO -VERY 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.