China Nepstar Jumps on IPO

| About: China Nepstar (NPD)

China Nepstar Chain Drugstore (NYSE: NPD), the largest retail drugstore chain in China based on the number of directly operated stores, jumped on its first day of NYSE trading. Nepstar priced 20,625,000 American depositary shares (ADSs) at US$16.20 each, exceeding its earlier expected range of US$11.50 to $13.50 per share.

This much anticipated IPO was greeted eagerly by investors.Nepstar has 1,791 directly operated drugstores located in 62 cities in China. The company reports that it had the highest revenue among all directly operated retail drugstore chains in China in years 2004 through 2006. With FY 2006 revenues of US$227.6 million, the company states its revenue CAGR from 2004 to 2006 was 43.4%. For the six months ending June 30, 2007 the company had revenues of US$124.3 million, an 18.4% increase over the same period last year.

The company plans to use proceeds from the IPO to fuel its continuing growth and will spend:

  • approximately US$52.0 million to open new stores;
  • approximately US$11.0 million to upgrade our information management and inventory control system;
  • approximately US$27.0 million to set up two new distribution centers;
  • the remainder will be used for other general corporate purposes and for potential acquisitions of retail drugstore chains or independently operated drugstores.

Nepstar specifically plans to grow in cities such as Beijing and Shanghai through acquisitions.

Goldman Sachs has reportedly invested as much as US$40 million in Nepstar, and holds 50 million ordinary shares, with 2 shares of common in each ADS. At Friday's offering price the value of these shares are in excess of US$400 million. Investors were also looking for green – at midday Nepstar was up over 17% to US$19.15.

Position: Author has a long position in GS

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