Strong investor turnout for noodle maker block

The seller agrees to increase the Tingyi offer by 33% to $45 million in response to strong demand.

Investors last night turned out in force to get a piece of Tingyi (Cayman Islands) Holding as an undisclosed seller sought to monetise part of their holdings in the Chinese noodle maker. In line with other such sell-downs in recent weeks, the absolute size of the deal was small, but the strong demand prompted the bookrunner to go back to the seller and see if he was willing to provide more shares. As a result, the final size was increased by 33% to HK$353.6 million ($45 million).  

According to a source, even at the larger size the deal was multiple times covered by a very high quality group of investors, and the price was accordingly fixed at the top of the range. The allocations were split between more than 25 investors and since the book closed before most US investors showed up for work, the majority of the shares went to Asia-based accounts, with some participation from Europe.

The seller initially offered 30 million shares at a discount of 4.9% to 7% versus yesterday's closing price of HK$9.30, which was later increased to 40 million. The offer was still small at less than 1% of the company, suggesting the deal could have been done in the open market rather than as a block trade involving a bookrunner. Like for many of the other recent sell-downs, however, the selling shareholder likely wanted the certainty of a minimum price which can be hard to obtain in the still volatile secondary market when the number of shares on offer amounts to more than a week's worth of trading. The Tingyi deal accounted for about 7-8 trading days' worth of volume.

The final price was fixed at HK$8.84, which was the top end of a range that started at HK$8.65. UBS acted as the sole bookrunner.

A pure China consumption play, Tingyi held up relatively well during the stockmarket collapse in the fourth quarter last year, but after rebounding from a low of HK$7.13 in late October it has essentially hovered in a trading range between HK$8.40 and HK$9, albeing with very good support at the bottom end. Last week it finally broke out of that range on the upside, which explains why the seller saw an opportunity to cash in. However, as the technical break signals continued upside, it also explains, at least partly, why investors were keen to buy.

Analysts do have a mixed view on the stock, however. Last week, Citi upgraded the company to a "buy", noting that an expected improvement in gross profit margins due to falling raw material costs is not yet in the price. "As more expensive inventories were digested towards late 2008, we expect signs of improvement in margins to show up in the first quarter 2009," analyst Sandy Chen said in a report. She raised her target price to HK$10.20 from HK$9.60, which based on yesterday's placement price implies a potential gain of 15%.

Meanwhile, over at Macquarie, Asian strategist Tim Rocks issued a report on April 17 highlighting 75 stocks that he thinks have move too far in anticipation of a pause in the economic decline and which are trading above their long-term average price-to-book value.  One big group of overvalued stocks is found in the consumer sector and includes Tingyi, which is currently trading at a P/BV of 6.6 times, or more than double its long-term average of 2.7 times. Rocks has an underweight rating on Tingyi and a target price of HK$7.50.

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