Yadea rides into HK with $240m IPO

Yadea Group could be the first pure-play electronic vehicle manufacturer listed in Hong Kong and provides some welcome diversity for investors after a rush of financial IPOs.

Yadea Group Holdings, a manufacturer and seller of electric motorcycles and bicycles, is targeting as much as HK$1.86 billion ($240 million) from an initial public offering in Hong Kong officially launched on Thursday.

The Huizhou, Guangdong-headquartered company is set to be the first pure-play electric vehicle manufacturer listed in Hong Kong, so will offer some welcome diversity to an equity capital market that has been skewed towards financial institutions so far this year.

The city’s two largest IPOs year-to-date are China Zheshang Bank’s $1.69 billion and Bank of Tianjin’s $948 million floatations, which involved very limited participation from international money managers and regular equity investors, according to one ECM banker.

Offering a potential tonic to the evident investor fatigue, Yadea offers a unique equity story by operating in a niche market that has grown steadily over the past years.

According to Yadea’s prospects, it was the largest electric scooter manufacturer and second-largest electric bicycle manufacturer by revenue last year in China, the world’s largest consumer market of electric two-wheeled vehicles.

Retail sales of electric two-wheeled vehicles grew at a compound annual growth rate of 5.3% between 2010 and 2015, according to Frost & Sullivan, which expects the growth rate to pick up slightly to 5.6% over the next five years.

While some independent research institutions are upbeat about the sector, some analysts highlighted one policy risk as the Chinese government could potentially expand a motorcycle ban to more cities.

Currently, the use of motorcycles is banned in nearly 200 Chinese cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, where they were blamed for high accident rates and illegal commercial rides.

In addition, industry competition is fierce because there were about 250 manufacturers with annual revenues of at least Rmb200 million ($30 million) by the end of last year. Syndicate analysts, however, believe Yadea could outperform its competitors due to its bigger scale and could potentially benefit from industry cosolidation, which has been ongoing since 2010.

The nitty gritty

A source familiar with the situation said the order book on the Yadea IPO will open until May 12, with listing scheduled for May 19.

The offering features the sale of 750 million shares in a 96:4 primary/secondary spilt, representing 25% of its enlarged share capital. There is also a standard 15% greenshoe of 112.5 million new shares.

Indicative price guidance was given at HK$1.72 to HK$2.48 per share. Based on the projected net earnings of Rmb494 million next year, the implied valuation will range between 8.7 to 12.5 times price-to-earnings on a pre-shoe basis, or 9 to 13 times post-shoe.

At the low end of the pricing range the company will have a market capitalisation of HK$5.2 billion, or a discount of 28.6% to the syndicate’s fair value estimate of HK$7.2 billion. At the high end it will be valued at HK$7.4 billion and the discount will tighten to 14.5% compared with fair value estimate of HK$8.7 billion.  

The company has brought in two cornerstone investors – Keenway International ($20 million) and Hong Kong Kunsheng Investment ($10 million) – who took up approximately 18% of the deal at low end pricing.

Joint bookrunners of the deal are JP Morgan, China Securities International, Huatai Securities and Alliance Capital.

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