Amidst prevailing weak market sentiment that was further aggravated by new rounds of fears surrounding the bailout of US mortgage giants Fannie Mac and Freddie Mac, Qian Feng Fabric Tech (QF) made its Mainboard debut on 27 Aug 2008.

The initial public offering (IPO) launch saw 123m invitation shares at $0.20 each being offered, consisting of 101m new shares and 22m vendor shares. Out of which, 1m shares were up for public offer while the remaining 122m shares by way of placement. The total net proceeds of $21.9m raised will be used to fund some of its expansion plans.

Based in Fujian Province of China, QF is mainly engaged in the production, dyeing and post-processing treatment of synthetic knitted fabrics which are used in apparels, shoes, luggage and bags. Some of its products have made their way into the garments and shoes of renowned brand names like Adidas, Kappa, Mizuno, Nike and Triumph as well as China brands such as Anta, Erke, 361̊, Li Ning and Septwolves.

Having a historical price earnings ratio (PER) of 4.57 times, QF may not appear particularly attractive to investors if one considers the 4-6 times PER of other similiar companies like China Taishan Technology Group Holdings and China Fibretech that got listed earlier this year. Notably, QF intends to recommend and distribute dividends amounting to at least 20% of its FY08 and FY09 earnings.

Planned use of proceeds
QF believes that prospects for the textiles industry remain robust, a similar sentiment echoed by other industry players. This may be partly substantiated by the fact that QF has seen phenomenal double-digit compounded annual growth rates for its revenue and earnings of 52.8% and 60.5% respectively from FY05 to FY07.

The growing affluence of China’s population, coupled with the hosting of international sports events like the recent Beijing Olympics Games and Guangzhou Asian Games in 2010 will fuel demand for textiles, sports apparel and equipment. To meet the increasing demand, approximately $20.6m will be invested to expand production capacity. Of which, $8m will come from the IPO proceeds.

In the past, QF has created new and innovative functional fabrics that were well-received by the consumers. In order to ensure QF can continue to cater to consumers’ ever-changing taste and fashion, a new research and development centre will be built with $1.6m from the IPO proceeds.

In recent years, a move to clean up the environment by the Chinese government has resulted in stringent measures and controls being imposed on new entrants into traditional polluting industries such as the textiles industry. This can potentially phase out less established companies, inevitably resulting in less competition. QF is one of few companies that practices environmental management by equipping itself with its own wastewater treatment and recycling plant which recycles 20% of the wastewater produced. Consequently in January 2008, it was conferred the “Outstanding Enterprise” award from the relevant authorities.

More importantly, production costs can be reduced by expanding its wastewater treatment facilities that will enable QF to reuse 60% of the wastewater it produces, up from its current capacity of 20%. A further $1.8m of the proceeds will be put to good use here.