Kanghui IPO Attracts Investors on High Profitability Level

Aug.12.10 | About: Medtronic plc (MDT)

Kanghui Holdings (NYSE: KH), a China orthopedic device maker, priced its IPO in the exact middle of its expected range, $10.25 per ADS, raising a total of $68.4 million in the offering. The pricing showed investors took a favorable reading on Kanghui’s business, an interest also shown in subsequent open market trading. Kanghui’s ADSs rose 88 cents to $11.13, a 9% increase, in early NYSE action.

One of Kanghui’s attractions is its high level of profitability. In the first half of 2010, the company reported net income of $6.7 million on revenues of $15.8 million, a profit margin of 42%.

The IPO placed 6.675 million ADSs. Of these 5.34 million were sold by the company and 1.34 million by selling shareholders, including the company’s founder and Chairman, Yikang Jiang, and the head of its Beijing Libeier brand, which Kangui acquired in 2008.

Kanghui, which is located in Changzhou, sells medical equipment used to repair bone fractures and spinal conditions such as nails, plates, meshes and screws. It is the leading orthopedic implant seller in China, and it also exports its products to emerging markets around the world.

With the completion of the IPO, the various series of Kanghui’s preferred shares will be converted into 41 million ADSs (out of a total capitalization of 103.9 million ADSs, fully diluted). The conversion will transform Kanghui into a profitable company. Previously, Kanghui had to announce a charge for the accretion of convertible preferred shares.

Kangui expects to receive proceeds of $46.9 million from the offering. The company said it plans to allocate the capital for the following projects:

  • $5-10 million to develop its product pipeline;
  • $15-20 million to expand manufacturing capacity;
  • $5-10 million to build its sales and marketing effort; and
  • the balance to fund general corporate purposes, including potential acquisitions, partnerships, alliances and licensing.

Disclosure: none.