IPOs on tap include: Bona Film Group Limited (BONA), SemiLeds (LEDS), Sky-mobi Limited (MOBI) and Lentuo International (LAS).
Bona Film Group Limited (BONA) $94mm IPO with a market cap of $469mm at the price range mid-point of $8. Scheduled for Thursday, December 9, 2010
Offers a direct way to participate in the fast growing China film market, which is expected to double from $1.5 billion to $3.1 billion from 2010 to 2012. BONA is China’s largest private (non-state) film distributor. It’s priced at a premium relative to Regal Entertainmnent (RGL) and Cinemark (CNK). A big plus for BONA is its operating margin of 17%, compared to 10% & 14% respectively for RGL & CNK.
BONA Valuation Metrics compared with Regal (RGC) & Cinemark (CNK)
The largest privately owned film distributor in China. The leading distributor of domestic films among all privately owned film distributors in China in terms of number of films distributed and total box office receipts in 2009, according to a report BONA commissioned from EntGroup.
In 2007, 2008 and 2009, films that BONA distributed or invested in accounted for 44.1%, 40.0% and 44.1%, respectively, of the total box office receipts for the 20 highest grossing domestic films in China, helping BONA establish itself as a leading player in the fast growing Chinese film market
China market growth– much higher than the US
According to EntGroup, total box office for urban Chinese movie theaters grew at a CAGR of 32.0% from 2005 to 2009, compared to a CAGR of 4.7% for the United States and 6.7% for the entire world over the same period.
In absolute terms, total box office for urban Chinese movie theaters has grown from RMB2.1 billion in 2005 (US$313.9 million) to RMB6.2 billion (US$926.7 million) in 2009 and is projected by EntGroup to reach RMB21.0 billion (US$3.1 billion) by 2012, representing a three-year CAGR of 50.2%.
Total admission for urban Chinese movie theaters has increased from 73 million in 2005 to 200 million in 2009, while the average ticket price increased moderately from RMB30.0 (US$4.5) in 2005 to RMB31.0 (US$4.6) in 2009, according to EntGroup.
State-owned enterprises have historically dominated and have in recent years continued to play a prominent role in the PRC film industry. The top three state-owned film distributors, China Film Group Corporation, Huaxia Film Distribution Co., Ltd. and Shanghai Film Group, together accounted for between 36.3% and 43.7% of the total box office for domestic films between 2007 and 2009, according to EntGroup.
Moreover, two state-owned film distributors have the exclusive right to distribute the limited number of foreign films, mainly Hollywood blockbusters, that may be exhibited in China on a box office sharing basis.
Privately owned film distributors have increasingly captured a sizeable share of the market for distribution of domestic films. BONA and Huayi Brothers are the top two privately owned film distributors; BONA company accounted for 16.5%, 17.1% and 17.3% of the total domestic films' box office in 2007, 2008 and 2009, and Huayi Brothers accounted for 6.4%, 19.4% and 13.2% during those same years, according to EntGroup.
Privately owned companies, such as BONA, generally have greater flexibility in operating their business on a commercial basis, including in selecting the films they produce or distribute.
Currently has the full ownership of the copyright to five films, partial ownership of the copyright to nine films and participation in financing of one film production without distribution rights or copyright. BONA primarily derives value from its copyrights and film distribution licenses through the theatrical release of films and the distribution and licensing of films to movie theaters. Also exploits film rights through distribution of films on broadcast television and cable network, Internet and digital distribution, and through the sale of home video products, such as DVDs and Blu-ray discs
USE OF PROCEEDS, $84mm
One ADR represents half a common share
- $40 million for possible acquisitions, which may include movie theaters to further build up and strengthen BONA’s national film exhibition network; and
- $25 million for the acquisition of film distribution rights including investment in film productions to secure film distribution rights, although particular amounts for particular films have not been determined
SemiLeds (LEDS) $81mm IPO with a market cap of $409 at the price range mid-point of $15.50. Scheduled for Thursday, December 9, 2010
Fast growing Taiwan-based company priced at 19 times earnings, annualizing the three months ended August 31, 2010. Net profit of 32% and 46% for the quarters ended May and August 2010. Mimimal taxes based on loss carry forward.
Aggressively expanding setting up manufacturing facilities in Taiwan and expanding in China through joint-ventures, the first of which is expected to be operational after January 2011
LEDS Valuation Metrics
Develops, manufactures and sells LED chips and LED components that LEDS believes are among the industry leaders when measured on both a lumens per watt and cost per lumen basis.
Products are used primarily for general lighting applications, including street lights and commercial, industrial and residential lighting. Sells blue, green and ultraviolet (UV) LED chips under the MvpLED brand, primarily to customers in China, Taiwan and other parts of Asia.
Manufacturing operations are located in Taiwan. LEDS intends to expand manufacturing capacity in Taiwan to meet the expected demand for products.
In addition, LEDS has interests in three joint ventures in China, Malaysia and Taiwan, including a 49% ownership interest in Xurui Guangdian Co., Ltd., or China SemiLEDs, which is based in Foshan, China. China SemiLEDs is in an early stage of development.
LEDS expects that China SemiLEDs' manufacturing facilities, currently under construction, will be operational after January 2011, at which time it will begin to manufacture and sell LED chips in China. LEDS expects that a substantial portion of future business in China will be conducted through China SemiLEDs and that future results of operations will be significantly impacted by the performance of China SemiLEDs.
Both 49% owned joint venture entity in Taiwan and the 50% owned joint venture entity in Malaysia are also in an early stage of development. LEDS does not expect these two entities to have any substantial business or operations for at least the next 12 months.
LED chips and LED components
Primarily competes with Citizen Electronics Co., Ltd., Cree, Inc. (CREE), Epistar Corporation, Everlight Electronics Co., Ltd., Nichia Corporation, Philips (Lumileds) (PHG), Siemens (Osram) (SI), Showa Denko and Toyoda Gosei.
Has a number of competitors that compete directly and are much larger, including, among others, Cree, Inc., Epistar Corporation, Nichia Corporation, Philips (Lumileds), and Siemens (Osram). Several substantially larger companies, such as Philips (Lumileds), Siemens (Osram) and Toyoda Gosei, compete against LEDS with a relatively small segment of their overall business.
In addition, several large and well-capitalized semiconductor companies, such as Micron Technology, Inc. (MU), Samsung Electronics Co., Ltd., Sharp Ltd. (SHCAY.PK) and Taiwan Semiconductor Manufacturing Co. have recently announced their plans to enter into the LED chip and lighting market.
LEDS is also aware of a number of well-funded private companies that are developing competing products.
USE OF PROCEEDS, $72mm
- $40.0 million to expand production capacity in Taiwan, including to (i) pay for the purchase of additional manufacturing space and build out existing space in Hsinchu, (ii) pay the purchase price for the three additional reactors that are expected to be delivered by the end of December 2010, and (iii) purchase additional manufacturing equipment, including reactors, as well as hire additional employees in the next 12 months;
- $10.0 million to build a test line and for research and development expenses related to LED chip production based on 6" wafers; and
- Balance of the net proceeds for general corporate purposes, including working capital and capital expenditures.
Sky-mobi Limited (MOBI) $65mm IPO with a market cap of $290 at the price range mid-point of $9. Scheduled for Thursday, December 9, 2010
Leading Chinese mobile app store with a 50% market share. Has never made a profit and sales increases are not impressive relative to other Chinese companies.
Gross margin is down to 28% on a quarterly basis. Market growth may eventually enable MOBI to make a profit
MOBI Valuation Metrics
- Operates the leading mobile application store in China, as measured by revenues in 2009, according to a report dated May 2010 commissioned by MOBI and prepared by Analysys International, an independent research and advisory firm, or the Analysys Report.
- The Analysys Report estimates that MOBI revenues accounted for approximately 50% of all revenues generated from mobile application stores in China in 2009.
TARGETS FEATURE PHONE MARKET
- Currently targets the feature phone market, which is the largest mobile phone segment in China, according to the Analysys Report. Collaborates with handset companies to pre-install Maopao on mobile handsets before shipment.
- Looking to provide users with a standardized interface to download and use mobile applications and content. As of September 30, 2010, had entered into cooperation agreements with over 440 handset companies to pre-install Maopao
USE OF PROCEEDS, $47mm
Each ADS represents eight common shares
- $20 million for the enhancement and expansion of the Maopao application store to support further development of the Maopao Community and community-based applications and other content
- $5 million for sales and marketing activities, including the promotion of our brand among users
- Balance for general corporate purposes, including overseas expansion and research and development activities.
Lentuo International (LAS), $94mm IPO with a market cap of $381 at the price range mid-point of $12.5. Scheduled for Friday, December 10, 2010
Based in Beijing LAS is a direct way to participate in the growing automobile market in China. Priced at a 36% premium to US-based care dealerships. The premium is based on a higher operating margins & faster expected growth.
At 19 times annualized earnings for the six months ended June 30 2010 (using the price range mid-point of $12.50), LAS is priced 36% higher than US-based car dealerships, which sell at a P/E multiple of 14. LAS’s operating margin of 9%, however, is more than double US comparables, and the Beijing auto market expects much higher growth than the US auto market.
LAS Valuation Metrics -- compared with AutoNation (AN), Penske Automotive (PAG) and Sonic Automotive (SAH)
The largest non-state-owned automobile retailer in Beijing, China as measured by new vehicle sales revenues in 2009, according to the CADA, (China Association of Automobile Manufacturers). Operates six franchise dealerships, ten automobile showrooms, one automobile repair shop and one car leasing company in the Beijing metropolitan area, which is the largest automobile market among all cities in China in terms of annual new passenger vehicle registrations, according to the CADA.
Three of LAS’s six dealerships are also among the leading dealerships in China for their respective brands as measured by individual dealership new vehicle sales volume. In 2009, new vehicle sales accounted for 91.0% of total revenues, automobile repair and maintenance service operations accounted for 8.7%, and insurance and finance-related services and other operations accounted for 0.3%.
According to the CADA the Beijing metropolitan area is the largest automobile retail market among all cities in China as measured by annual new passenger vehicle registrations. Beijing's passenger vehicle market grew 50.1% in 2009 over 2008, with 519,000 new passenger vehicle registrations.
For the year ending December 31, 2010, Beijing's passenger vehicle market is expected to grow 9.6% year over year, with 569,000 new passenger vehicles expected to be registered
Has one dealership for each of six different brands and sells domestically manufactured or imported vehicles offered by joint ventures between foreign and Chinese automakers. These brands include FAW-Volkswagen, Audi, FAW-Mazda, Shanghai-Volkswagen, Toyota and Chang An-Mazda, representing some of the most popular mid-line and luxury brands in China.
According to the CADA, Shanghai-Volkswagen and FAW-Volkswagen were the two highest selling brands in China from 2007 to 2009 and Audi was the top selling luxury brand in China during the same period, in each case as measured by the number of vehicles sold.
The top three brands of vehicles that LAS sells, which collectively represented approximately 75.8% of LAS’s new vehicle sales revenues in 2009, are Audi, FAW-Volkswagen and FAW-Mazda.
USE OF PROCEEDS, $83.3mm
Each ADS represents two ordinary shares
- $58.0 million to expand the size and scope of the dealership network through the establishment of new dealerships and acquisitions;
- $8.0 million to enhance higher margin products and services, increase sales at existing dealerships and implement other growth strategies
- Balance for working capital and other general corporate purposes