Apple supplier Cowell sets IPO price range

Korean camera module manufacturer Cowell e Holdings hopes to tempt investors to take a bite out of the apple with a comparably favourable valuation.

Korean camera module manufacturer Cowell e Holdings began building a book on Tuesday for its share listing in Hong Kong, which could yet net the key Apple supplier almost $180 million.

A source familiar with the matter said the deal was drawing strong support and already covered by anchor investors.

The initial public offering is being promoted as a cheap proxy for Apple and, unusually, for a partial private equity divestment does not appear to be coming at a particularly expensive valuation.

According to a term sheet seen by FinanceAsia, the base deal comprises 208 million shares with a split of 40% primary and 60% secondary shares. This represents 25% of the company's enlarged share capital and has a price range of HK$4 to HK$5.75 per share. 

Final pricing will take place on March 24 and the shares are scheduled to begin trading on March 31. 

Korean private equity firm Hahn & Co will use the IPO to reduce its stake in the company from 50% to 30%, while founder Kwak Jung-Hwan will reduce his holding from 50% to 45%. 

The expected total proceeds pre-greenshoe range from HK$832 million to HK$1.196 billion ($107 million to $154 million), valuing the company at HK$3 billion to HK$4.8 billion. The greenshoe, which comprises secondary shares, could add a further 15% to the deal. 

The deal will also have the standard split with 90% earmarked for institutional investors and 10% for retail subject to oversubscription levels. 


Cowell is being marketed at 5.8 to 8.4 times forecast 2015 earnings. Morgan Stanley, the IPO's sole sponsor, estimates fair value at seven to 10 times the company's expected 2015 earnings of $67 million. 

That means Cowell is being pitched at a substantial discount to Apple itself, which is currently trading at 14.5 times consensus forward earnings. 

Until a few days ago, the US technology giant had been on a slight downward slide after hitting a high of $129.49 in late February. By March 11 it had slid back to $122.24. However, it has found new support in the past few days, rising back to $124.95 by Monday's close in New York. 

Cowell's other comparables are Korean-listed technology companies including Apple supplier LG Innotek and Samsung suppliers Partron and Samsung Electro-Mechanics (Semco). 

LG Innotek is the world's largest camera module manufacturer with a 14% market share compared with Cowell's 5%. It has been fairly volatile over the past week, dropping 8.4% in the space of two trading sessions before surging 6.73% on Tuesday.

It is currently valued at 12.69 times forecast 2015 earnings and has generally been on a rising trend since mid-February.

Partron has also been on an upswing since then and is trading at 10.69 times consensus earnings. Semco, which has been rising since mid-October, is bid at 35 times forward earnings. 

In Hong Kong, Cowell is also likely to be compared to Chinese suppliers Sunny Optical and AAC Technology. Both companies have higher valuations than the Koreans because Chinese handset vendors such as Xiaomi are quickly gaining market share.

Sunny Optical is bid at 15.46 times, while AAC Technology is valued at just over 20 times. 

Cowell was previously listed on the Kosdaq but decided to list in Hong Kong instead since its operations are based on the Chinese mainland.

New component

In 2014 the company derived 77.7% of its revenues from Apple and one of the IPO's chief selling points is a new system-in-chip component that the group is developing for it.

Morgan Stanley is forecasting that this as-yet-undisclosed component will translate into strong sales growth by 2017. It is forecasting that revenues will rise from $1.037 billion in 2015 to $1.296 billion in 2016 and then jump to $1.719 billion in 2017. 

However, as with all component suppliers, margins tend to be fairly thin and the US investment bank forecasts that Cowell's net profits will be a far more modest $78 million in 2016 and $101 million in 2017. 

For investors who want pure exposure to camera modules, Cowell offers the best bet since this is where it derives 98.6% of its revenue from. The remaining 1.4% comes from optical components. 

During its roadshow luncheon in Hong Kong on Tuesday, the company flagged this as a chief selling point since handset vendors are increasingly using camera phones as a key differentiating factor for their products. 

Once Cowell lists, the company and private equity investor Hahn & Co will be subject to a six-month lock up. Controlling shareholder Kwak will be under a 12-month lock up.

Morgan Stanley is sole sponsor and bookrunner, with BNP Paribas and CIMB as joint lead managers.

This article has been corrected. The roles of BNP Paribas and CIMB on the deal were incorrectly reported in a previous version of the story.


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