vietnamese-motorbike-maker-prices-ipo

Vietnamese motorbike maker prices IPO

Vietnam Manufacturing and Export Processing attracts investors to its Hong Kong IPO by focusing on the consumption growth story in its home market.
Vietnamese scooter and cub motorbike maker Vietnam Manufacturing and Export Processing (VMEP) has priced its Hong Kong initial public offering below the middle of the range, raising HK$851 million ($109 million).

The price was set yesterday at HK$3.75, compared with a range of HK$3.61 to HK$4.64. According to a source, the institutional book was multiple times covered while the retail portion was around three times subscribed. The demand primarily came from Asia, possibly because investors in the region have a better understanding of, and feel a lot more comfortable with, the Vietnamese consumption story.

ôThe company had to respect investorsÆ wishes and price towards the low end of the range,ö says the source. "Even though, to my knowledge, some of the demand came through in the middle of the range. The company is effectively leaving some money on the table.ö

The Hang Seng Index remains volatile. After gaining more than 700 points, or 2.5% on Tuesday, it erased almost all of that yesterday when it fell 2.4%. In a volatile market, the decision on where to fix the price is particularly crucial to the performance of the stock on its trading debut, as was nicely displayed by China Sunshine Paper Holdings yesterday. At a time when most new listings are falling below their issue prices, the newcomer held its ground and closed at HK$6.17, or 2.8% above its issue price on its first day of trading yesterday.

VMEP offered 226.92 million shares, or 25% of its enlarged share capital, of which 77.4% were primary shares. The secondary shares were sold by majority shareholder Sanyang and Merrill Lynch, which will still hold 69.4% and 5.7% of the company after the IPO. Of the total shares, 12.9% were sold by Sanyang and 9.7% were sold by Merrill Lynch. As usual on a Hong Kong IPO, 90% of the deal was offered to institutions, while 10% was earmarked for retail investors. BNP Paribas was the sole bookrunner.

The final price values the company at 11.2 times its 2008 earnings. This is much cheaper than another Hong Kong-listed Vietnamese company, Luks Group (Vietnam Holdings), which is currently trading at a 2008 price-to-earnings multiple of 22.6, according to Bloomberg data.

Luks manufactures and sells cement, health care, electronic, plywood and wood products, and is also involved in property investments. As there are few companies with a Vietnamese concept on the Hong Kong stock exchange, Luks was the stock that most investors used as a benchmark even though the businesses of the two companies are not directly comparable. However, Luks is at least exposed to the same Vietnam growth story.

LuksÆ price more than tripled between January and May to reach HK$14.78, but then tumbled more than 50% to HK$7 between May and mid-August. Since then it has resumed a gradual uptrend, closing at HK$9.50 yesterday.

ôIt is a unique story. I think investors are attracted to the company by the fact that it is a proxy to Vietnamese consumer spending,ö the source says, with reference to VMEP.

The manufacturer ranks third among the principal foreign-owned motorbike manufacturers in terms of sales volumes, according to its listing document. It sells its motorbikes under two brands, namely SYM and SANDA. SYM scooters are high-end products that use many custom-designed components and are marketed as stylish and technologically modern, while SANDA products are aimed at lower-income consumers and are positioned as practical, functional transport.

The company also makes motorbike engines and parts for its own use and for sale, and sells and services moulds for making die-cast and forged metal parts. In the first half of 2007, the manufacturer sold on average 17,661 motorbikes each month.

VMEP posted a 41.5% increase in net profit to $23.3 million in 2006. Its income in 2004 was much higher than that of 2006, however, since it experienced a 61.7% decrease in net profit to $16.5 million in 2005. The company expects that its net profit will grow by at least 28.6% to $30 million this year.

The company plans to invest around 61% of the net proceeds in its distribution channel in Vietnam within the next two years. This will include opening approximately 20 new self-owned SYM stores, establishing about 20 new authorised SYM stores through joint ventures with existing or new dealers, and upgrading around 165 existing authorised SYM stores owned by dealers. Another 18% of the IPO funds will be used to set up a research and development centre in Vietnam, which is expected to commence operations in 2009, while approximately 11% of the proceeds will be reserved for potential mergers and acquisitions.

The trading debut is scheduled for December 20.
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