That is slightly lower than the initial PE range of 12.3 to 14.3, which is where the company had been testing the market over the past couple of weeks.
ôThe overall response is good, but there is some price resistance at about 13 times (forward) earnings. The current range will leave a bit more room on the upside once the shares start trading,ö a person familiar with the offering says.
The diversified industrial company is now looking to raise between HK$1.02 billion and HK$1.26 billion ($130 million to $163 million). Including the 15% greenshoe, total proceeds could increase to $187 million.
Credit Suisse is sole bookrunner for the offering with BNP Paribas Peregrine and Macquarie Securities acting as co-leads.
SPM is offering 600.56 million new H-shares, or 44.6% of its enlarged share capital, at a price between HK$1.70 and HK$2.10 apiece. If the greenshoe is exercised in full, 48.02% of the company will be in public hands.
The IPO has the usual Hong Kong split with 10% earmarked for retail investors and the remainder for institutions, barring any clawbacks being triggered.
The indicative price range values SPM at a discount to its sister company, Shanghai Electric Group, which is quoted at a 2006 P/E multiple of about 17 times after rallying 75% since its trading debut in late April last year.
Because of its diverse operations, SPM has no direct comparables so investors will also look at Hong Kong-listed small-cap industrials, which trade at an average 12-13 times forward earnings, observers say.
The company has five divisions, the largest and most high-tech of which makes turbine blades and contributed about 55% of operating profit last year. Shanghai Electric, which makes equipment for the power, electromagnetic and transport industries, last year bought about 38% of SPMÆs total production from this division.
The company's other divisions comprise bearings, cutting tools, electrical motors and fasteners, including nuts and bolts, which makes it a diversified and leveraged play on ChinaÆs rapid industrial production growth.
The company saw a compound annual growth rate of more than 50% in revenues and more than 100% in net profits in 2003-2005 and is projecting its bottom line to improve by about 67% this year to around Rmb225 million ($28 million), according to investors who have been briefed on the company.
The IPO price will be fixed on April 20 and the shares are scheduled to start trading on Hong KongÆs main board on April 27.