When the stock market is volatile, most initial public offering (IPO) companies would delay the actual listing of their shares. As at 22 April, 7 companies that have lodged their IPO prospectuses with the Monetary Authority of Singapore, have yet to register them.

BRAVING MARKET VOLATILITY
Nonetheless, two China companies have put on a brave front and went ahead with their respective listing. First was China Eratat Sports Fashion (CE), which was listed on April 17 at $0.30 each. This was followed by China Zaino International (CZ), which was listed on April 18 at $0.60 each.

Comparatively, CE, has fared better in terms of its stock price performance since its listing. On April 21, CE closed 6.7% higher at $0.32 over its offer price of $0.30 while CZ fell victim to negative market sentiment and closed 18.3% lower at $0.49 over its offer price of $0.60.

CZ is a China-based backpack manufacturer. Its mainboard IPO listing was worth $87m. Its offer of 145m new shares comprised 2m shares for public subscription and 143m placement shares. The shares offered represent 15.34% of CZ’s enlarged share capital of 945m shares.

At $0.60 apiece, the shares are priced at a FY06 historical price-earnings ratio of 7.91 times, based on a pre-offering share capital of 800m shares. CZ manufactures a diverse range of backpacks and luggage with up to 1,000 designs each year, of which approximately 200 are selected for commercial production. The company prices its products affordably and has captured China’s fast-growing midrange mass consumer market.

As testament to the good quality of its products, CZ won the “Top 500 Asia Valuable Brand Award” by the Supervision and Management Centre of Asia International Brand Certification. It was also conferred China Leather Industry Association’s “2006 Top 12 Bag Brands in China”.

SUPERIOR MARKET SHARE
According to a report by Frost and Sullivan, CZ is the No. 1 backpack and luggage manufacturer in China, in terms of revenue in 2006.

It is also said to have a market share of 35.8% for doublestrapped backpacks.

Between FY04 and FY06, CZ’s net profits grew at a compounded annual growth rate of 87.7%, from Rmb54.8m to Rmb193m. For the first nine months of FY07, it achieved a 56.6% growth in net profits to Rmb211.1m, compared with the same period in FY06.

CZ will use its net proceeds of $80.5m to: i) strengthen its DAPAI brand ($13.7m), ii) expand its sales and distribution network ($9.8m), iii) expand its production capacity ($50m) and iv) fund working capital ($6.9m).

Factors that augur well for the company’s growth prospects include: The rising affluence of the Chinese market, growth in demand for consumer goods and the tourism boom in the PRC.

The company intends to recommend and distribute dividends of not less than 20% of its FY08 and FY09 net profits attributable to shareholders. Considering the company’s consistent profitable results, CZ looks set to be a good stock for investors to bag some dividend income.