La Chapelle Fashion has kicked off a roadshow ahead of its Hong Kong initial public offering, which could net the Shanghai-based retailer up to $328 million.
There will be 121.6 million shares on offer, representing 25% of enlarged share capital, with the issuer looking to price the shares between HK$13.98 to HK$18.20 per unit. All of the shares will be primary. A greenshoe option will add on an additional 15% to the base offering, according to a term sheet.
The base deal is $286 million, but should demand warrant it, an exercised greenshoe option would bring the total deal to $328 million. Depending on where the deal prices, the market capitalisation is between $890 million to $1.15 billion. CICC is the sole sponsor, while also taking on joint bookrunning responsibilities with CLSA.
The Chinese retailer has secured two cornerstone investors. Chow Tai Fook and Senda International Capital, a subsidy of Zhejiang Longsheng Group, have each pledged a combined $50 million in La Chapelle. Both institutions are subject to a six-month lockup.
The deal is scheduled to price on September 29, and will begin trading on October 8.
Cheap
At HK$13.98 to HK$18.20 per share, La Chapelle, which focuses on mid-range clothing and has five women’s brands, two men’s and one children’s line, is being marketed at 8.6 to 9.6 times its 2014 earnings, which is a discount to peers such as Daphne International Holdings and Trinity.
Daphne Holdings, a shoe retailer, is trading at a higher 16.27 times its 2014 earnings, while Trinity, a manufacturer of luxury men’s clothing is trading at 18.48 times its 2014 earnings.
La Chapelle is in line with China Lilang, the men’s clothing and accessory manufacturer, which is currently trading at 9.49 times its 2014 earnings, and it comes at a premium to Ports Design, a designer, manufacturer and retailer of ladies’ and men’s fashion, now trading at 4.52 times its 2014 earnings.
Performance for the listed comps is mixed. While China Lilang and Daphne Holdings have posted gains of 13% and 11% so far this year, respectively, Trinity and Ports Design are in the red. Trinity has fallen 11% while Ports Design has plummeted 49% year-to-date.
The slowing Chinese economy has undoubtedly had an effect on the apparel industry. The country’s economy is growing around 2% and consumption is staggering, as evidenced by major retailers’ revenues and profits. Trinity’s revenue dropped 6% to HK$1.26 billion ($162.6 million) in the first half of the year from HK$1.34 billion in the same prior-year period.
Daphne Holdings meanwhile experienced a 44% drop in its net profit to HK$174.4 million in the first half of the year from HK$310.3 million the year before.
Proceeds
Not deterred by flailing consumer growth, La Chapelle, which already claims to have one of China’s largest nationwide distribution networks and is the third in market share, has ambitious expansion plans, and aims to put some 83% of the IPO proceeds towards opening 1,000 retail stores in the next three years across 26 provinces.
A smaller portion will go towards improving its management information system, developing its management school in Shanghai and working capital and corporate purposes.
A handful of Chinese retailers have come to market this year, and have generally outperformed. Cosmo Lady, a mainland lingerie manufacturer, is up 19% since its June IPO, while high-end women’s fashion designer Koradior Holdings is up 66% since its market debut this summer.
Menswear firm China Fordoo Holdings meanwhile is down 2% since it raised $60.4 million in July.
