Texwinca completes placement

Majority shareholder sells a 5% stake.

CLSA completed a $49.9 million placement for Hong Kong textile manufacturer Texwinca yesterday (Tuesday). The 66 million share deal was completed on a best efforts basis as the selling shareholder, Poon Bun Chak, was more concerned to see the stock placed with long term institutional investors than building a large order book.

The deal was consequently syndicated on a first come first served basis, with participation from 10 accounts. Pricing was fixed at HK$5.90, an 8.5% discount to the stock's HK$6.45 close.

At this level, it was placed out close to its six month trading average of HK$5.91.Year-to-date the stock is up 11.21%, hitting a high of HK$6.95 in early February.

The deal represented 26.4 trading days and expands the freefloat from 29% to 34%. It reduces Poon's holding from 58% to 53%.

Analysts with a buy recommendation on the stock have price targets around the HK$6.88 to HK$7.5 range. In March, for example, UBS Warburg said it was upgrading Texwinca from neutral to buy because of the, "Higher growth profile of its textile operations, better margins through economies of scale and higher dividend payout."

The company has said it hopes to increase volume at its China-based mills by 25% over the next two years and analysts say the company is positioned to benefit from the Mainland's gradual relaxation of export quotas. Because it operates on a cost-plus basis, it has consistently been able to pass on increasing raw material prices to its end customers.

Analysts also add that the company may be able to increase its dividend payout ratio from the current 60% level (4.7% yield) because it is sitting on a net cash pile of HK$400 million.

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