Goodbaby seeks $190 million from Hong Kong IPO

Demand from institutional investors is strong on the first day of bookbuilding as the Chinese maker of children's strollers offers its shares at a significant discount to domestic peer Boshiwa.

Another Chinese children’s product company is in the market to make the most of the demand for Chinese consumption plays. Goodbaby International Holdings, which specialises in baby strollers, kicked off the bookbuilding for an initial public offering of up to HK$1.47 billion ($190 million) in Hong Kong yesterday.

If successful, it will be the second children’s product play to list in Hong Kong in two months following clothes manufacturer Boshiwa. The latter started trading at the end of September after raising $368 million in an IPO.

Goodbaby principally engages in the design, research and development, manufacturing, marketing and sale of children’s strollers and car safety seats. It produces one of every 2.9 strollers in China, North America and its European markets. In 2009, the strollers Goodbaby supplied accounted for 55.1% of the total number of strollers sold in North America and 34.1% of the total retail value of these products, the company said in a preliminary IPO prospectus.

Jiangsu-based Goodbaby is offering 300 million shares at a price between HK$3.70 and HK$4.90 per share, which suggests the company could raise between HK$1.11 billion and HK$1.47 billion ($143 million to $190 million).

Based on the company's forecast earnings for 2011, the indicated price range represents a price-to-earnings ratio of 12.4 to16.4 times. By comparison, Boshiwa's IPO price of HK$4.98 translated into 19.1 times its 2011 projected earnings. However, the share price has rallied since the debut and yesterday Boshiwa closed 48% above its IPO price at HK$7.38. This means it is now trading at a 2011 P/E multiple of 28.3 times.

Demand from institutional investors for Goodbaby's offering was “very strong” on the first day of bookbuilding yesterday, according to sources.

The offering consists of 67% primary shares and 33% secondary shares, which are sold by two existing shareholders -- PUD, a company partly owned by Goodbaby's executive directors, and CRF, an investment firm. Some 90% of the shares are targeted at institutional investors, while the remaining 10% are earmarked for the Hong Kong retail offering. The split is subject to standard clawback adjustments.

As usual, the deal also comes with a 15% greenshoe option which, if fully exercised, will allow the company to raise up to $218 million, by issuing an additional 45 million primary shares.  

There are no cornerstone investors participating in the deal.

The share price will be fixed on November 16 and the expected listing date is November 24. Morgan Stanley is the sole global coordinator and bookrunner of the deal.

Goodbaby made HK$164.4 million of profits in 2009, down from HK$173.5 million in the previous year. The decline was due to the global financial crisis as the economic downturn made consumers more cautious about their spending, the company said. The profit in the first seven months this year amounted to HK$141.5 million, which represents a 42.4% increase compared to the same period in 2009.

As of July 31, 2010, Goodbaby's distribution network covered 28 provinces, autonomous regions and municipalities in China and it had 5,297 maternity and childcare specialty stores, 835 hypermarket outlets, and 664 department store outlets. It has 451 distributors in China.

Although personal income in China has been increasing with economic growth and rapid urbanisation in China, Chinese parents spend less on children's products than their Western counterparts, suggesting there could be huge growth potential.

From 2005 to 2009, the per capital annual disposable income of urban households in China increased from $1,281 to $2,514, while per capita annual net income of rural households increased from $397 to $759. 

In 2009, the consumption of durable children’s products per capita in the US and Europe was approximately $143 and $114, respectively. In China, that same number was only $42. China also has around 44 million children that are six years and younger -- much higher than the number of children of the same age in developed countries, Goodbaby said in the IPO statement.

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