As part of its plans to speed up its growth and gain market visibility, China Fibretech (CF) launched an initial public offering (IPO) to net proceeds of $16.3m. CF offered 133.7m invitation shares - comprising 89.1m new shares and 44.6m vendor shares - at $0.21 each for its mainboard listing. 2m shares were offered to retail investors and 131.7m shares by way of placement.

CF is priced at 5.8 times price earnings ratio (PER) based on its FY06 earnings.
In comparison, China Printing & Dyeing Hldg (CPD) was traded at $0.105 on July 1 (PER of 2.3 times based on its FY07 earnings). CPD was listed in September 2006 at $0.27 each. It’s anyone’s guess as to whether CF’s stock price would follow the same path as CPD.

LISTING AT AN INOPPORTUNE TIME

Despite CF being affordably and attractively priced, it fell victim to negative market sentiment driven by sky-high oil prices on its first trading day, and was pushed down to an intra-day low of $0.19 before closing at $0.195.

CF, which is based in Fujian, China, provides fabric dyeing and post-processing treatment services. The company said that it would require $26.1m for its expansion plans which will double its fabric dyeing capacity to 120,000 tons per year by end-2010.

PLANNED USE OF PROCEEDS

CF will use about $14m from its expected net proceeds to construct new facilities and acquire additional machinery for its dyeing and settling lines. Another $1m will be used to expand its research and development capabilities and the remaining $1.3m for general working capital.

The company is also keen on expansion for its popular fabrics like urethane elastic fabric and introducing new services and treatment that offer higher margins.

These include fabric treatments to enhance fabric strength, mould resistance, fluorine resistance, and to impart anti-dust, anti-oil and anti-dirt properties.

From 2004 to 2006, its net profit grew a compounded annual growth rate (CAGR) of 48%. Its net profit grew 43.3% from a year ago to Rmb64.8m in 2006 on the back of a 31.5% jump in revenue which amounted to Rmb329.9m.

For the nine months ended September 30, 2007, CF’s revenue and net profit were Rmb280.2m and Rmb75.4m respectively.

HEALTHY PROSPECTS

CF is counting on the following factors as prospects for its business growth:

(i) Growth in the PRC textile industry
(ii) Improving living standards and worldwide rise in affluency and purchasing power have pushed up demand for quality and specialty apparels and apparels with shorter life span.
(iii)Entry barriers for new market entrants are now higher in view of the more stringent environmental measures and requirements imposed by the PRC authorities for firms intending to enter high-pollution industries.

Group executive chairman and chief executive officer Wu Xinhua said, “Based on the steady growth that we have seen over the years, we are confident of maintaining the growth pace.”