CPMC and China high precision IPOs raise a combined USD 267 million

It is reported that CPMC encounters high levels of demand as two smaller cap companies succeed in raising capital.

Two Chinese small cap companies priced their Hong Kong initial public offerings raising a combined HKD 2.07 billion. Metal packaging company CPMC Holdings raised HKD 1.07 billion and China High Precision Automation Group tapped the market for HKD 1 billion.

CPMC sold 200 million primary shares at HKD 5.39 apiece the top of an indicative range that started at HKD 3.85. Retail investors flocked to the deal with the Hong Kong public offer approximately 200 times covered. This triggered the largest possible clawback and left 50% of the total offering in the hands of individual investors, up from the initial 10%. There were also three cornerstone investors who together took 16.5% of the deal. They were China Resources Company, CCB International Asset Management and JDB, which is also the company main customer.

So there wasn't much left for institutions the remaining 33.5% of the deal, approximately USD 46 million worth of shares, was split between 130 accounts. The institutional tranche was 60 times covered leading to a situation where a number of investors had their orders scaled back. All geographical regions were well represented.

One source said the company was popular for a couple of reasons.

1. Investors saw its key product metal containers as a proxy for Chinese consumption; if people buy more packaged products, CPMC will need to produce more containers.
2. International investors were comfortable with the company main shareholder, Cofco Group one of China largest food businesses which has a reputation for strong corporate governance.

The final price values the company at 18.6 times 2010 projected earnings. There are no direct comparables listed in Hong Kong, although some research reports compared CPMC to Hong Kong listed Chinese companies in the food and beverage sector, such as Tingyi Holdings and Want Want China which are trading at price-to-earnings multiples of around 15 times and 18 times respectively. There is also a US company in the same industry, Ball Corporation, which trades at around 12 times 2010 projected earnings.

The other company to price CHP raised HKD 1 billion. It is in the business of producing high precision industrial automation instruments, with a focus on the middle and high end of the market. Its main products are detectors, indicators and controllers. It also has a horological division, making the parts used in quartz watches.

CHP sold 250 million shares at HKD 4 each, in the bottom half of its indicative range of HKD 3.50 to HKD 4.80 a share. The final price left the book multiply times covered with an international investor base consisting mostly of long-only funds.

One of CHP main selling points was that it is not particularly exposed to one particular sector it sells instruments used in optics, healthcare, vehicles, industrial automation and electronics. And if, as some analysts believe, China manufacturing sector is becoming more sophisticated, CHP should perform well, because it will supply manufacturers in need of precision parts.

Both of these IPOs are relatively small companies in niche industries that are taking advantage of the rebounding markets to raise capital. And when it comes to aftermarket performance, such companies have performed somewhat better than their larger competitors.
http://steelguru.com/news/index/2009/11/14/MTIwMzE3/CPMC_and_China_high_precision_IPOs_raise_a_combined_USD_267_million.html