Three Chinese Companies to Debut This Week - A Follow-Up

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Includes: CCM, NKBP, TRO
by: Renaissance Capital IPO Research

This week, three profitable Chinese companies will attempt to take advantage of the recent interest and confidence investors have shown in the IPO markets: a cancer center operator, a solar module provider and a biopharmaceutical company will all come to market within the next few days as IPO activity levels surge before the year end.

Trony Solar Holdings

Trony Solar Holdings (TRO) is expected to be the largest of the three IPOs, planning to raise $195 million by offering 19.5 million ADSs (including 4.5 million from insiders) at a price range of $9.00 to $11.00. J.P. Morgan and Credit Suisse are the lead underwriters on the deal, which is expected to list on the NYSE this Thursday (Dec. 10). Trony is one of the world's largest producers of thin film solar modules, which are significantly thinner and more cost effective to produce than their conventional crystalline counterparts. It has achieved traction in the $750 million global off-grid solar market, which provides components for applications ranging from street lamps to consumer products, and expects to take advantage of 38% forecasted growth in this market while also expanding into the much larger on-grid market.

Trony Solar has exhibited strong sales growth, with revenue increasing 98% to $79.3 million in its fiscal year 2009. However, the limitations of its niche market coupled with competitive pressures Trony will inevitably face as it transitions from the off-grid to the much larger on-grid market segment may make investors hesitant, despite the strong recent performance of solar stocks.

Concord Medical Services Holdings

Concord Medical Services Holdings (NYSE:CCM) is a leading operator of radiotherapy and diagnostic imaging centers in China. Headquartered in Beijing, the company plans to raise $126 million by offering 12 million ADSs at a revised price range of $9.50 to $11.50, up from its original range of $9.00 to $11.00. Although the company is relatively small in size, it has demonstrated an ability to drive strong top-line growth by acquiring China Medstar in 2008 and partnering with an increasing number of specialty cancer hospitals, with 83 centers currently in its network and another 30 in its pipeline. Concord Medical has boosted its revenue by more than four times since 2006, reaching $40 million in the last twelve months and has achieved impressive 60% operating margins.

Going forward,
the company expects to benefit from increasing demand for cancer treatment, China's recent proposal to raise healthcare expenditures, and a fragmented market that provides room for further growth. Concord Medical has also added to its aggressive growth strategy with plans to build two of its own cancer hospitals through joint ventures over the next two years. In comparison with the lease-and-operate business model it has used in the past, Concord Medical plans to directly manage its two new hospitals, a project that poses considerable execution risk. Concord Medical plans to list on the NYSE this Friday (Dec. 11) under the symbol CCM, with Morgan Stanley, J.P. Morgan, and CICC as the lead underwriters on the deal.

China Nuokang Bio-Pharmaceutical

Like Concord Medical, China Nuokang Bio-Pharmaceutical (NASDAQ:NKBP) is expected to benefit from China's $125 billion investment in the healthcare industry. The company sells 14 hematological and cardiovascular products, led by flagship hemocoagulant Baquting (94% of revenue). The company plans to offer 5 million ADSs, including 473,000 from selling shareholders, at a price between $10 and $12 per share; it plans to list on the NASDAQ this Thursday (Dec. 10) with Jefferies as the lead underwriter on the deal.

Though Chinese Nuokang has executed well to date, gaining dominance in the blood-clotting drug market with 38% market share, questions remain as to whether the small biopharma ($40 million in LTM revenue) can replicate Baquting's success with its new product candidates, the most significant of which is an intravenous vasodilator used to treat erectile dysfunction (Kaitong). Despite the fact that it stands to benefit from the Chinese government's healthcare investments, factors such as fixed price controls, the increasingly complex regulatory environment and its reliance on a single product are likely to give investors cause for concern.

A fourth Chinese company, Linkage Technology International Holdings, was also expected to begin trading this week, but withdrew the deal after announcing it would be acquired by its main competitor, AsiaInfo Holdings. As for the other three, with recent Chinese IPOs getting mixed receptions, investors are likely to continue to be selective with the current crop.

Disclosure: No positions