The department store operator is offering its shares at a price ranging from HK$4.80 to HK$5.80, which implies a valuation of 23.1 to 27 times its projected earnings for the fiscal year to June 2008, sources say. This compares with a 2007 price-to-earnings multiple of 42.4 times for Parkson Retail Group and 37.5 times for Golden Eagle Retail Group, according to Bloomberg data. Both of these companies have a fiscal year ending in December and both are also larger than New World Department Store.
Even though the P/E multiples arenÆt directly comparable, it is still noticeable that the listing candidate is offering its shares at a discount. But according to a source close to the deal, investors believe New World Department Store needs to come at a cheaper price than its larger peers.
ôFirstly there is an IPO discount. Secondly, New World Department Store is obviously smaller in terms of scale,ö says the source. ôIt has a shorter track record than Parkson [and], if you look at some of the other data such as net profit margins and things like that, they are not yet as good as ParksonÆs.ö
The listing candidate also has fewer self-owned properties, which is part of the reason why it should trade at a discount to Golden Eagle, observers say.
ôThe valuation is attractive while being reasonably aggressive, and the reception (from investors) so far is very, very good,ö the source continues.
The price should be reasonably attractive to leave room for investors to reap some gains in the aftermarket, argues one analyst. ôHowever, as Parkson is the market leader with a desirable profitability, a good track record and a proven capability to carry out mergers and acquisitions, there is no certainty that investors who buy into the IPO will stay long.ö
The offering, which is jointly arranged by Deutsche Bank and HSBC, comprises 25% of the enlarged share capital, equivalent to 406 million new shares. Of the total, 5.6% is reserved for existing shareholders of parent company New World Development, while 84.4% will go to the institutional tranche and 10% will be earmarked for retail investors.
There is also a clawback mechanism that could increase the retail tranche to as much as 50% in case of heavy oversubscriptions. The final price is expected to be determined on July 5 and trading debut is scheduled for July 12.
New World Department Store operates 16 self-owned and 12 managed stores in 16 provinces or municipalities in Greater China, ranking fifth in terms of revenues and second to Parkson on geographical reach. More than 60% of its stores are located in the most prosperous cities in the country.
Chinese department stores have always been regarded as hot by investors, because of their close links to the increasing wealth of the middle class. Intime Department Store, which listed in Hong Kong in March, received hefty demand for its initial public offering, resulting in the institutional portion being more than 35 times covered post claw-back. The retail tranche ended 231 times subscribed after investors submitted HK$56 billion ($7.2 billion) worth of orders.
IntimeÆs share price surged 19% on its first day of trading and is currently trading 16.8% above its IPO price. Meanwhile Parkson and Golden Eagle have risen 412% and 103% since their respective listings in November 2005 and March 2006.
The seemingly insatiable investor demand for Chinese consumption stocks has also prompted a number of Chinese retailers to line up to offer their shares in the Hong Kong market, including no fewer than three shoe manufacturers/retailers in the past month alone. Times Limited, a hypermarket and supermarket chain with operations primarily in the eastern part of China, is next in line. The company, which aims to raise up to $125 million from an IPO with the help of HSBC, will kick off the institutional roadshow tomorrow.
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