Antonoil sets price range at significant discount

The oil services provider will compete for IPO funds with a spin-off from Taiwan food producer Uni-President and paper manufacturer China Sunshine.
ChinaÆs oil services company Anton Oilfield Services Group launches the roadshow for its Hong Kong initial public offering today (Nov 26) with a price range of HK$1.80 to HK$2.40. The company could raise up to HK$1.25 billion ($160.5 million).

The price values the listing candidate at approximately 15 to 20 times its 2008 earnings, which one investor says is attractive, given that the ôhigh oil price should favour the oil services sector at least in the short-runö.

Antonoil provides oilfield services primarily within the areas of drilling, field, production and wells. It specialises in services that demand new and advanced technologies, which complement the oilfield services provided by the large state-owned oil corporations, namely: China National Petroleum Corporation (CNPC), which is the parent of Hong Kong-listed PetroChina; Sinopec; and CNOOC.

The price range represents a significant discount to where its closest comparables are trading and is also well below the level that syndicate research analysts refer to as fair value.

ôA volatile market may be one of the reasons why the company chose not to set its price range as aggressively as it could have,ö the source adds.

The Hong Kong stockmarket has remained fickle recently, with the Hang Seng Index shedding more than 1,700 points, or over 6%, in the three days to November 22. It staged a partial recovery on Friday, however, gaining more than 500 points, or 2%, to end the week at 26,541 points. The Hang Seng China Enterprises Index (the H-share index) has been on a downtrend since late October, plummeting more than 22% in less than a month. It dropped 1% on Friday to close at 15,691 points.

A IPO syndicate report estimates the fair value of Antonoil using a 2008 P/E of 22-27 times, with is approximately 35%-46% higher than the offering range. The report projects that the companyÆs net income will increase 47% and 91% year-on-year in 2007 and 2008, to reach Rmb113 million ($15.3 million) and Rmb215.8 million, respectively. Antonoil recorded a net income of Rmb76.7 million in 2006.

There are no perfect comparables to the company, according to a source, but investors could refer to Hong Kong-listed China Oilfield Services Limited (COSL) and Shandong Molong Petroleum Machinery to get some idea about the valuation. An integrated oilfield services provider in the offshore China market, COSL currently trades at 30 times its projected 2008 earnings, while Shandong Molong, which designs and manufactures oil extraction machinery and related accessories, is quoted at 24.8 times.

As of mid-October, COSLÆs share price had quadrupled from the beginning of the year, but since then, it has shed more than 18% to HK$17.28 last Friday- in line with the broader market direction and the downturn in the Chinese oil producers. Shandong Molong had been relatively stable around the HK$2.10 level since September, but over the past week or so it has dropped 24% to HK$1.60 on Friday.

Antonoil is offering 520 million new shares, or 25% of its enlarged share capital, with 90% targeted at institutions. The rest will go towards the retail tranche, subject to normal clawback triggers that could boost this portion of the deal to 50% of the total if it is more than 100 times subscribed. There is also a greenshoe which could increase the total deal size by 15%. Credit Suisse and JPMorgan are the joint bookrunners.

The final price will be determined on December 7 and the listing debut is scheduled for December 14.

Given the recent volatility in the secondary market, the conditions are not exactly ideal for selling new shares. But with only four weeks left until Christmas, the pressure is on for companies that want to go public before year end û as evident by the still bulging pipeline of listing hopefuls.

Also kicking off the bookbuilding for the institutional portion of their IPOs today are Uni-President China and China Sunshine Paper.

Uni-President China is the mainland subsidiary of TaiwanÆs largest food conglomerate and as such will be playing on the strong investor demand for consumer concept stocks. Sources say the company is aiming to raise as much as $700 million through the offering, which is led by Morgan Stanley and UBS.

SunshineÆs offering is significantly smaller at only $74 million to $96 million û or up to $110 million including the greenshoe. Even so, the company has enlisted Citigroup Global Markets Financial Products and asset management firm Keywise Capital Management as cornerstone investors, which again suggests some concerns about the current market environment. The two firms will each buy $10 million worth of shares, or a combined 20.8% to 26.9% of the total deal, depending on the final price.

Sunshine mainly makes white top linerboard, light-coated linerboard and core board, which is the paper tube that constitutes the base when making a roll of products like paper, yarn, chemical fibre or metal sheets. Last year, it was the largest producer of white top linerboard in China and also had the countryÆs largest production capacity for light-coated linerboard.

The company is offering 100 million new shares at a price of HK$5.75 to HK$7.45 apiece. BNP Paribas and BOC International are joint bookrunners.
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