China IPOs: BCD Semiconductor Looks Interesting

Includes: BCDS, ZAHLY
by: IPOdesktop

China IPOs on tap include: BCD Semiconductor Mfg (NASDAQ:BCDS) & Zuoan Fashion Limited (ZA) Five others are scheduled for the week of January 24, totaling $3 billion.

BCD Semiconductor (BCDS) expects a $69 million IPO with a market capitalization of $203 million at a price range mid-point of $11.5. Scheduled for Friday January 28, 2011.

In the analog semiconductor business, BCDS generated rapid recent growth. Sales are up 38% for the nine months to September 2010. Profits are up 666%

Annualizing the nine months to September 2010 figure, it is priced at a P/E of 9 compared to larger, U.S.-based competitors selling in the 15-16 P/E range, for example On Semi (ONNN) at 16, Diodes (NASDAQ:DIOD) at 16, Fairchild (FCS) at 15 and Monolithic Power (NASDAQ:MPWR) at 16.

BCDS, however, paid only 5% in income taxes for the September 2010 nine months. If BCDS can continue its growth trajectory, the stock looks under priced at 9 times annualized earnings for the nine months ended September 2010.

BCDS Valuation Metrics

BCDS provides analog ICs specializing in the design, manufacture and sale of a broad range of power management semiconductors to the large, expanding Asian electronics industry.

The focus is on high-volume growth segments in the computing, consumer and communications markets, such as personal computers, flat panel televisions and monitors, mobile phone chargers and a wide variety of consumer and portable electronic devices.

Sales growth is broad-based across all categories of products, resulting from increased demand for existing products as the general economy recovered from the global economic downturn. Revenue incresed from the sale of new products introduced since September 30, 2009, which increased revenue over the nine months ended September 30, 2010 by $8.3 million.

As of September 30, 2010, BCDS had

  • 41 patent applications and 49 granted patents in China

  • 28 patent applications and 10 granted patents in the United States.

Issued and allowed patents in China and the United States expire in the years beginning in 2014 through 2025 and 2024 through 2027, respectively

BCDS competes with global analog semiconductor providers such as Advanced Analog Technology, Inc.; Diodes Incorporated; Fairchild Semiconductor International, Inc.; Global Mixed-Mode Technology Inc.; Micrel, Inc.; Monolithic Power Systems, Inc.; National Semiconductor Corporation; O2Micro International Limited; ON Semiconductor Corporation; Rohm Co., Ltd.; Power Integrations, Inc.; Richtek Technology Corporation; STMicroelectronics N.V. and Texas Instruments Incorporated. Does not compete with digital semiconductor providers

Use of Proceeds: $43.6mm from 4.3mm ADSs, shareholders intend to sell 1.6mm ADSs:

  • $24.5 million to finance the remaining construction of BCDS’s second fab

  • Repay some or all of the outstanding loan, amounting to $6.0 million, with the Agricultural Bank of China

  • Balance for working capital & general corporate purposes

Zuoan Fashion Limited (ZA)
is another China-based company. ZA expects a $79 million IPO with a market capitalization of $325 million at the price range mid-point of $11.5. Scheduled for the week of January 24, 2010.

ZA is a design-driven fashion casual menswear company in China. It can be compared to China Xiniya Fashn XNY which IPO’d November 22 and is down about 28% from its IPO price.

At the price range mid-point of $11.5 ZA would sell for 13 times earnings, annualized for the nine months ended September 2010. That's a slight discount to XNY's equivalent P/E of 15.

ZA Valuation Metrics

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.