Investors Rush into Duoyuan Global Water's IPO

Duoyuan Global Water (DGW) had an impressive IPO yesterday. The company priced its shares above range at $16 but Duoyuan's ADRs actually started trading at $22.65. The China-based company is a leading supplier of domestic water treatment equipment.

Business Overview (from prospectus)

We are a leading China-based domestic water treatment equipment supplier. Our product offerings focus on addressing the key steps in the water treatment process, such as filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis. Founded in 1992, we offer a comprehensive set of more than 80 complementary products across the following three product categories:


• Circulating Water Treatment Equipment. We currently produce over 35 products, including electronic water conditioners, fully automatic filters, circulating water central processors, cyclone filters and water softeners, used in the process of treating water and removing buildup in circulating water systems.

• Water Purification Equipment. We currently produce over 30 products, many of which use ultraviolet, ozone, membrane-based and electrodeionization, or EDI, technologies, in the process of treating and purifying water for various applications and end-user customers, including residential communities and commercial businesses.

• Wastewater Treatment Equipment. We currently produce over 15 products, including grit separators, microporous aerators and belt-type thickener-filter press mono-block machines, used in the process of treating wastewater, such as municipal sewage and industrial and agricultural wastewater.

Offering: 5.5 million shares at $16 per share. Net proceeds of $88 million will be used to improve and upgrade existing manufacturing facilities and production lines; to build new manufacturing facilities and production lines to produce new water treatment products; to build a research and development laboratory; and for general corporate purposes.

Lead Underwriters: Piper Jaffray and Oppenheimer & Co

Financial Highlights:

Our revenue increased RMB33.8 million, or 39.0%, from RMB86.8 million for the three months ended March 31, 2008 to RMB120.6 million ($17.7 million) for the three months ended March 31, 2009, with revenue increasing in each of our product categories... As a percentage of revenue, our cost of revenue decreased from 60.2% to 54.9% for the three months ended March 31, 2008 and 2009, respectively... Due primarily to sales volume increases, our cost of revenue increased RMB13.9 million, or 26.6%, from RMB52.3 million for the three months ended March 31, 2008 to RMB66.2 million ($9.7 million) for the three months ended March 31, 2009... As a result of the factors above, our gross profit increased RMB19.9 million, or 57.7%, from RMB34.5 million for the three months ended March 31, 2008 to RMB54.5 million ($8.0 million) for the three months ended March 31, 2009.

Competitors:

We compete with both major international conglomerates and local companies in each of our product categories as follows:


• Circulating Water Treatment Equipment. Our electronic water conditioner competes primarily with products from three other local companies: Zhejiang De’an New Technology Development Co. Ltd. (China), Jiangyin Jialong Environment Technology Co. Ltd. (China) and Beijing Kejingyuan Huanyu Technology Development Co. Ltd. (China). Our automatic filter competes primarily with products from Claude Laval Co. (USA), FILTOMAT Ltd. (Israel) and Shijiazhuang Yuquan Environmental Protection Equipment Co. Ltd. (China).

• Water Purification Equipment. Our ozone generator competes primarily with products from Ozonia Ltd. (Switzerland), WEDECO AG (Germany) and Shanghai Environmental Protection Equipment Factory (China). Our industry pure water equipment with EDI functions compete primarily with products from GE Water & Process Technologies, CANPURE Corporation (Canada) and Zhejiang Omex Environmental Engineering Ltd. (a subsidiary of Dow Chemical).

• Wastewater Treatment Equipment. Our microporous aerator competes primarily with products from REHAU (Germany), ITT (Sweden) and Zhejiang Yuhuan Jieda Water Supply & Disposal Equipment Co. Ltd. (China). Our belt-type thickener-filter press mono-block machine competes primarily with products from Wuxi Tongyong Machinery Co. Ltd. (China), DWT Project Co. Ltd. (Finland) and Passavant-Roediger GmbH (Germany).

Additional Resources:

• Seeking Alpha: 'Review of Three China IPOs'
• Seeking Alpha: 'China Water Pollution Play: Duoyuan Global Water IPO Coming'
• Hoover's: 'Duoyuan Global''
• Press Release: 'Duoyuan Global Water Prices IPO'
• Reuters: 'Duoyuan shares jump 30 percent in debut'
  

Comments

[China Expert:]

Wha

Jun 25 08:11 AM

[China Expert:]

Too bad this post does not include a proforma balance sheet and capitalization table.... just maybe....maybe.... someone could actually put a guestimate of this company's valuation.
If someone is going to cut and paste information from a prospectus..... you might as well be thorough about it and cut and paste relative info.

Jun 25 08:15 AM

[stwo1:]

Mister "China Expert", just hit the button that says "prospectus" you got everything you need. It would be nice if you can shoot me and/or others a note what your analysis brings about. Have a great day.


On Jun 25 08:15 AM China Expert wrote:

> Too bad this post does not include a proforma balance sheet and capitalization
> table.... just maybe....maybe.... someone could actually put a guestimate
> of this company's valuation.
> If someone is going to cut and paste information from a prospectus.....
> you might as well be thorough about it and cut and paste relative
> info.

Jun 25 12:27 PM

[The Honest ...:]

DGW seems reasonably valued here based on what it has done, but I think it could run to $30 on momo and optimism. My full post on DGW here:

thehonesttrader.blogsp...

Jun 25 05:58 PM