FIT Hon Teng IPO finally plugs in

Second time lucky for Hon Hai’s connector business as it finally prices its Hong Kong IPO, even if the selling price is nowhere near what it expected nine months ago.

Taiwan’s Hon Hai Precision Industry is on course to complete its second spinoff in Hong Kong after pricing a $2.7 billion ($342 million) initial public offering of shares in its connector business. 

The 990-million share sale by FIT Hon Teng was priced at HK$2.7 per share, slightly below the mid-point of guidance, although allocations were still being finalised during early Thursday afternoon hours, according to sources familiar with the situation.

The deal's expected completion is a relief for Hon Hai Precision, better known as the owner of Foxconn, as it is a full year since the company filed an initial listing application. The world’s largest contract electronics manufacturer, founded by Taiwanese billionaire Terry Gou, launched pre-marketing in October but was unable to proceed with an official deal launch because some investors at the time judged it too expensive, according to bankers familiar with the situation.

FIT Hon Teng, also known as Foxconn Interconnect Technology Limited, had always intended to launch when market conditions allowed, the bankers said. The size of the deal when it came, even so, is a lot smaller than the $1.5 billion or more that was being tipped some 18 months ago.

The company manufactures connectors such as cables, plugs, and adaptors, which are used in computers and smart phones as well as in industrial, automotive and medical equipment.

It is only a small part of the Hon Hai empire, accounting for only 1.6% of group sales in 2015. But at 9% FIT Hon Teng's operating profit margin is much higher than its parent's at 5.2%.

New iPhone

The IPO is possibly gaining more traction this time round because it is getting closer to the expected launch of Apple’s new iPhone 8 series, which has historically encouraged capital to flow into so-called Apple concept stocks. 

Apple has not announced any official launch date for the new gadget but it is widely expected at some point this year since it is the 10th anniversary of the original iPhone's launch and industry observers anticipate a lot of fanfare and interest in the new product, given what has already been seen.

The iPhone 8 frenzy escalated in March after the gadget’s purported design was unveiled on the internet. In Hong Kong, Apple concept stocks such as AAC Technologies and Sunny Optical are up by 38% and 104% in price, respectively, since the beginning of the year, greatly outperforming the benchmark index’s 18% gain.

That is positive for FIT Hon Teng too because the company supplies most of its wares to its parent, which assembles the bulk of Apple products and generates about half its revenue from the world's largest technology company.

Bankers said FIT Hon Teng concluded the IPO's institutional bookbuild a day earlier than scheduled on Monday after filling the order book across the tightened price range of HK$2.6 to HK$2.8 per share (from an initial HK$2.38 to HK$3.08 per share).

As a result, the company is now set to list its shares on July 13.

FIT Hon Teng will be Hon Hai Precision's second Hong Kong-listed subsidiary besides FIH Mobile, the group's mobile phone assembly business. Hon Hai is also the majority shareholder of Taiwan-listed Zhen Ding Technology and Cheng Uei Precision Industry.

Joint global coordinators of the IPO were Bank of America Merrill LynchCICC and Credit Suisse.

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