China New Borun (NYSE:BORN)
At the price range mid-point of $13 BORN has a market cap of $332 million
see BORN IPO financial analysis
. BORN is a potential sleeper that could do well over time, especially if the IPO price is reduced.
. Priced at 10x annualized earnings for the March quarter, with 46% more production capacity expected to be on-stream in December, 2010
. Expected to be the largest player in its defined market: ingredients for high & medium-end baijiu. Baijui is a white liquor, 18% to 68% alcohol by volume. In comparison vodka is 35% to 50% alcohol.
. Operated its facilities at full capacity since 2007. To date has not experienced any difficulty in selling 100% of production even as production capacity expanded.
Baijui industry is consolidating and BORN is still able to get government permits to expand
. Uses an in-house developed process to create a competitive advantage according to BORN
. Overall industry supply exceeds demand, but large producers like BORN historically sell 100% of their production capacity
. Focuses on ingredients for the high and medium-end baijiu market
. Based on data from the Frost & Sullivan Report and BORN’s industry knowledge, BORN believes it will be the largest producer of corn-based edible alcohol in China, in terms of current known production capacity, following complete development of the Daqing facility.
. According to the Frost & Sullivan Report, BORN is currently the largest privately-owned corn-based edible alcohol producer operating in Shandong Province and Heilongjiang Province.
. BORN’s edible alcohol products are primarily sold as an ingredient to producers of baijiu who further blend the products into finished products sold under various brand names throughout China.
. BORN’s focus is on ingredients for the high and medium-end baijiu market has had a direct impact on the demand for its product. In particular during the recent economic downturn demand for baijiu in the PRC did not experience a significant decline.
Demand for BORN’s product remained steady, when edible alcohol suppliers primarily servicing the pharmaceutical and chemical industries experienced sharp drops in demand.
. Going forward, BORN believes the projected growth in the high and medium-end baijiu market will continue to result in an uptake of 100% of annual production.
BORN believes that the annualized average price of edible alcohol will rise in the near term due to the growing demand for edible alcohol
. BORN believes its in-house developed manufacturing process results in a cost effective, consistent and superior product widely sought by baijiu producers.
. Has been able to sell 100% of production capacity in recent years due to its large production volume and high product quality
. A key supplier for leading baijiu producers, who are willing to maintain long term relationships with BORN in order to secure product supply of BORN’s product.
USE OF IPO PROCEEDS, $65mm
$55 million to fund the expansion of production capacity.
Remaining portion as working capital to be used to support the production capacity expansion
see BORN IPO financial analysis