China Materials IPO: WSP Holdings

WSP Holdings (WH), a Chinese manufacturer of seamless casing, tubing and drill pipes used for oil and natural gas exploration, drilling and extraction, which are collectively referred to as Oil Country Tubular Goods, or OCTG.

All quotations are from the company's most recent S-1 filing with links provided.

WSP HOLDINGS (WH)
Business Overview (from prospectus)

We are a leading Chinese manufacturer of seamless casing, tubing and drill pipes used for oil and natural gas exploration, drilling and extraction, which we refer to as Oil Country Tubular Goods, or OCTG. We sell our products in both the domestic and international markets. In China, we target sales of our products primarily at leading Chinese oil companies. In 2006, we were the third largest OCTG supplier to China National Petroleum Corporation, or CNPC, which, according to China Economics Yearbook 2006, accounted for approximately 59% of the oil output and 73% of the gas output in China in 2005. In addition, we are a major PRC exporter of seamless OCTG, accounting for over 15% of OCTG exports from China in 2006, according to a report by Preston Publishing Company, or Preston, an independent market research and consulting firm. We commissioned this report to provide us with industry data of the seamless OCTG market. In the international markets, we have established an extensive overseas customer base, covering oilfields in North America, the Middle East, Asia, Africa and Russia.

Offering: 25.0 million shares at $10.50 - $12.50 per share. Net proceeds of approximately $262.2 million will be used for overseas expansion in Canada, the United States and the Middle East; for capital expenditures and expansion and improvements of the company's production facilities in China; to repay debt; for strategic investment in and acquisitions of complementary businesses. At this time, the company has not entered into advanced discussions or negotiations with respect to any potential acquisitions; for other working capital purposes.

Lead Underwriters: J.P. Morgan, CIBC World Markets

Financial Highlights:

Our net revenues increased by 87.6% from $128.5 million in 2004 to $241.0 million in 2005 and by 52.1% to $366.5 million in 2006... Our cost of revenues increased by 69.8% from $117.0 million in 2004 to $198.6 million in 2005 and by 41.6% to $281.1 million in 2006... Our gross profit increased by 267.5% from $11.6 million in 2004 to $42.5 million in 2005 and by 101.1% to $85.4 million in 2006. Our gross margin increased from 9.0% in 2004 to 17.6% in 2005 and 23.3% in 2006... Our net income for the year increased by 275.4% from $6.5 million in 2004 to $24.3 million in 2005 and by 142.3% to $59.0 million in 2006. Our net margin increased from 5.0% in 2004 to 10.1% in 2005 and 16.1% in 2006.

Competition:

The PRC seamless OCTG market is dominated by a few major steel producers with a large number of small producers competing for the remaining small portion of the market. We face competition mainly from top producers who have succeeded in establishing a strong brand name with oil companies. Our major competitors in the PRC seamless OCTG market include Tianjin Pipe (Group) Corporation, Shanghai Baosteel Group Corporation and Pangang Group Chengdu Iron & Steel Co., Ltd. Among these competitors, we are the only one specializing in seamless OCTG products, while the others also produce welded OCTG or non-OCTG products. Many of our competitors are state-owned enterprises which may have greater resources and better brand recognition than we do.

The competitors in our export markets include all the leading seamless pipe producers in the world, particularly those in Argentina, Japan, the United States, France and Russia. Our international competitors include Tenaris (TS) in Argentina, Vallourec & Mannesmann Tubes in France, TMK in Russia, Sumitomo and JFE Steel Corporation in Japan, and US Steel (X) in the United States.

Additional Resources:

• Company website
• Online road show
• AP: 'WSP Holdings registers for IPO'
• Hoovers Factsheet

Comments

[USA]

China can go to hell. They are all communists!

[31 October]

I like USA's comparison of Chinese vs. American materials costs using metrics. But his expository prose on Chinese socio-economic and environmental constraints regarding pipeline production have illuminated the risks to future cash flow from continuing operations. His brilliant financial analysis is almost good enough to be considered for a finance.yahoo message board.

On Dec 19 10:04 AM USA wrote:

> China can go to hell. They are all communists!