The Mainland manufacturer of gearboxes for wind turbines is kicking off a roadshow today for an initial public offering that could raise up to HK$2.12 billion ($272 million). The Morgan Stanley-led offering comes at a time when wind power is becoming a real alternative in China and is expected to see almost explosive growth in the amount of installed capacity over the next five years û if industry projections are to be believed.
BTM Consult ApS, an independent consultant specialising in renewable energy, estimates that ChinaÆs installed wind power capacity will increase at a compound annual growth rate of 46.4% in 2006 to 2011 to about 18 gigawatts. This compares with a projected CAGR of 22% for installed wind power capacity globally.
Like elsewhere in the world, the increased use of wind power in China is driven by heightened environmental concerns, but energy-security issues are also an important factor given that China currently imports almost half the oil it consumes. The government plan is to lift ChinaÆs installed wind power capacity to 2% as a proportion of total power capacity by 2020 from only about 0.1% today.
As a low-cost, but high-quality supplier of gear-transmissions to the leading manufacturer of wind turbines in China and to the third biggest player globally, Nanjing-based CHST is in a prime position to benefit from this growth, analysts argue. China has previously imported the majority of its wind power equipment, but the government has clearly shown that it wants to create a more favourable market for its home-grown players by requiring at least 70% of the total value of wind power machine components to come from domestic suppliers.
The money raised from the IPO will be used to finance a further expansion of this business, with syndicate analysts projecting that CHST will lift its production capacity from 467 megawatts today to 4.3-4.6GW by 2010.
The company is offering 300 million new shares at a price between HK$5.38 and HK$7.08, plus a 15% greenshoe which could lift total proceeds to about $313 million. The based deal accounts for 25% of the company. The offering has the usual 90-10 split between institutional and retail investors as well as a standard clawback mechanism that could increase the retail tranche to as much as 50% in case of strong retail demand.
CHST shifted its focus to the wind power sector as recently as 2005 after more than 35 years of manufacturing general gear-transmissions for industrial use, but has already captured a 90% share of the domestic market. According to analysts, this has been possible because of a greater technological know-how and better response to market demand than its competitors, which are all state-owned enterprises.
The growth of its wind power division has resulted in a 3% global market share so far and has propelled CHST to a top three ranking among the worldÆs largest wind gearbox manufacturers, behind Flender (and its partner Winergy) and Hansen. The growth has been so rapid and promising in fact, that it is on the basis of this business alone that CHST is now seeking a listing, even though it still accounted for just over one quarter of the companyÆs total revenues last year.
Syndicate analysts project a rise in revenues from the wind gearbox business to Rmb834 million ($108 million) in 2007 and Rmb2.05 billion in 2008 from Rmb318 million last year. During this period, the divisionÆs portion of total revenues will rise to 58.5%.
ôThis company is in the right place at the right time,ö says one observer. Among the key drivers of its business going forward, he notes, is the expectation that gearboxes for wind turbines will be in relatively short supply and the fact that CHST û being based in China - has a 50% cost advantage over its international competitors.
ôIf you combine that with a leading market share in one of the fastest growing markets, albeit from a lower base, you have a pretty compelling case,ö he says.
Among the companyÆs current customers are Golden Wind, which is the top Chinese supplier of wind turbines with a 31% market share in terms of installed capacity, and GE Wind, a unit of General Electric which is the third largest wind turbine maker in the world with a 15.5% market share last year. GE Wind is also the fourth supplier of wind turbines in China, trailing overseas competitors Vestas and Gamesa. Other major customers include Nordex and RePower.
Last year, CHST entered into a seven-year joint-development agreement with GE Energy that will see the two companies share know-how and intellectual capital and develop new wind gear transmission products. In addition, GE has committed to sourcing 50% of its global demand for 1.5MW wind gear transmissions from CHST from 2010 and GE Capital has acquired a 5% stake in the listing candidate.
The IPO price range values the company at 16.5 to 21.7 times its 2008 earnings, based on syndicate estimates. This puts it at a premium to Hong Kong-listed Chinese machinery manufacturer, such as Harbin Power or China Infrastructure Machinery, which trade at an average 2008 P/E multiple of about 15 times. General power components makers fetch a similar valuation of 15 times 2008 earnings.
A third group of comparables, according to syndicate analysts, are the renewable energy players, which trade at about 21 times 2008 earnings.
A premium to the machinery markets should be warranted, sources say, because of CHSTÆs much stronger growth profile.
Aside from wind turbine gearboxes, the company also makes gear transmission equipment for marine vessels as well as a broad range of gear transmission equipment for various industrial applications
Formerly a state-owned entity, CHST was privatised in 2001 through a management buyout and since then has added a few outside investors, including Templeton, DPF and the China Everbright group, who became shareholders through the acquisition of a pre-IPO convertible bond. These three own a combined 18% of the company before the IPO.
The Hong Kong retail offering will run from June 20 to 25, with the final price expected shortly thereafter. The trading debut is scheduled for July 4.
Chinese solar power stocks have suffered recently amid concerns about shrinking margins and as the sector has had to absorb a flurry of new issuance, so this could well be the perfect time to bring a different kind of alternative energy stock to market. China High Speed Transmission (CHST) for one, must be hoping that this is how the wind blows.
The Mainland manufacturer of gearboxes for wind turbines is kicking off a roadshow today (June 15) for an initial public offering that could raise up to HK$2.12 billion ($272 million). The Morgan Stanley-led offering comes at a time when wind power is becoming a real alternative in China and is expected to see almost explosive growth in the amount of installed capacity over the next five years û if industry projections are to be believed.
BTM Consult ApS, an independent consultant specialising in renewable energy, estimates that ChinaÆs installed wind power capacity will increase at a compound annual growth rate of 46.4% in 2006 to 2011 to about 18 gigawatts. This compares with a projected CAGR of 22% for installed wind power capacity globally.
Like elsewhere in the world, the increased use of wind power in China is driven by heightened environmental concerns, but energy-security issues are also an important factor given that China currently imports almost half the oil it consumes. The government plan is to lift ChinaÆs installed wind power capacity to 2% as a proportion of total power capacity by 2020 from only about 0.1% today.
As a low-cost, but high-quality supplier of gear-transmissions to the leading manufacturer of wind turbines in China and to the third biggest player globally, Nanjing-based CHST is in a prime position to benefit from this growth, analysts argue. China has previously imported the majority of its wind power equipment, but the government has clearly shown that it wants to create a more favourable market for its home-grown players by requiring at least 70% of the total value of wind power machine components to come from domestic suppliers.
The money raised from the IPO will be used to finance a further expansion of this business, with syndicate analysts projecting that CHST will lift its production capacity from 467 megawatts today to 4.3-4.6GW by 2010.
The company is offering 300 million new shares at a price between HK$5.38 and HK$7.08, plus a 15% greenshoe which could lift total proceeds to about $313 million. The based deal accounts for 25% of the company. The offering has the usual 90-10 split between institutional and retail investors as well as a standard clawback mechanism that could increase the retail tranche to as much as 50% in case of strong retail demand.
CHST shifted its focus to the wind power sector as recently as 2005 after more than 35 years of manufacturing general gear-transmissions for industrial use, but has already captured a 90% share of the domestic market. According to analysts, this has been possible because of a greater technological know-how and better response to market demand than its competitors, which are all state-owned enterprises.
The growth of its wind power division has resulted in a 3% global market share so far and has propelled CHST to a top three ranking among the worldÆs largest wind gearbox manufacturers, behind Flender (and its partner Winergy) and Hansen. The growth has been so rapid and promising in fact, that it is on the basis of this business alone that CHST is now seeking a listing, even though it still accounted for just over one quarter of the companyÆs total revenues last year.
Syndicate analysts project a rise in revenues from the wind gearbox business to Rmb834 million ($108 million) in 2007 and Rmb2.05 billion in 2008 from Rmb318 million last year. During this period, the divisionÆs portion of total revenues will rise to 58.5%.
ôThis company is in the right place at the right time,ö says one observer. Among the key drivers of its business going forward, he notes, is the expectation that gearboxes for wind turbines will be in relatively short supply and the fact that CHST û being based in China - has a 50% cost advantage over its international competitors.
ôIf you combine that with a leading market share in one of the fastest growing markets, albeit from a lower base, you have a pretty compelling case,ö he says.
Among the companyÆs current customers are Golden Wind, which is the top Chinese supplier of wind turbines with a 31% market share in terms of installed capacity, and GE Wind, a unit of General Electric which is the third largest wind turbine maker in the world with a 15.5% market share last year. GE Wind is also the fourth supplier of wind turbines in China, trailing overseas competitors Vestas and Gamesa. Other major customers include Nordex and RePower.
Last year, CHST entered into a seven-year joint-development agreement with GE Energy that will see the two companies share know-how and intellectual capital and develop new wind gear transmission products. In addition, GE has committed to sourcing 50% of its global demand for 1.5MW wind gear transmissions from CHST from 2010 and GE Capital has acquired a 5% stake in the listing candidate.
The IPO price range values the company at 16.5 to 21.7 times its 2008 earnings, based on syndicate estimates. This puts it at a premium to Hong Kong-listed Chinese machinery manufacturer, such as Harbin Power or China Infrastructure Machinery, which trade at an average 2008 P/E multiple of about 15 times. General power components makers fetch a similar valuation of 15 times 2008 earnings.
A third group of comparables, according to syndicate analysts, are the renewable energy players, which trade at about 21 times 2008 earnings.
A premium to the machinery markets should be warranted, sources say, because of CHSTÆs much stronger growth profile.
Aside from wind turbine gearboxes, the company also makes gear transmission equipment for marine vessels as well as a broad range of gear transmission equipment for various industrial applications
Formerly a state-owned entity, CHST was privatised in 2001 through a management buyout and since then has added a few outside investors, including Templeton, DPF and the China Everbright group, who became shareholders through the acquisition of a pre-IPO convertible bond. These three own a combined 18% of the company before the IPO.
The Hong Kong retail offering will run from June 20 to 25, with the final price expected shortly thereafter. The trading debut is scheduled for July 4.
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