CHOW TAI FOOK Jewellery Co Ltd, owned by Hong Kong property tycoon Cheng Yu-tung, plans to raise around 23 bln yuan in an upcoming listing in the Special Administrative Region (SAR).
While it is no surprise that the top jewelry chain by market share in Mainland China would look to Hong Kong to raise capital, even more encouraging is that if all goes as planned, Chow Tai Fook will have a price-to-earnings (P/E) ratio of over 30 times come IPO time.
This is a P/E level seldom seen on the SAR’s depressed stock exchange these days, said a Chinese language piece in Sinafinance.
Chow Tai Fook is clearly looking to ride the insatiable appetite for gold, silver and diamond-studded jewelry in Mainland China, purchases of which skyrocketed by nearly 50% year-on-year in the first seven months to well over 16 bln usd.
Mr. Cheng, the jeweler’s founder -- who also serves as chairman of New World Development (HK: 17) -- recently shelled out 750 mln usd for five luxury hotels overseas including New York’s Carlyle amid expectations of a travel boom driven by newly rich Asian tourists.
But the report said he is hoping to hit an even bigger gold mine with sales of precious stones and jewelry in the world’s most populous country, where Chow Tai Fook has a market-leading 6.3% share.
The jeweler also owns the biggest sales network in Greater China with over 1,400 stores, while Hong Kong-listed peers Luk Fook (HK: 590) and Chow Sang Sang (HK: 116) have 700 and 240, respectively.
Therefore, what has analysts and potential investors all abuzz is not the tycoon’s high-profile property purchases overseas but instead the highly-anticipated listing of Chow Tai Fook in Hong Kong by the end of this year.
Mr. Cheng recently said he had full confidence in the potential of Chow Tai Fook in the regional jewelry market and was unfazed by the European sovereign debt crises on demand for his firm’s products in Mainland China.
In fact, he said the opposite may be true and Greater Chinese consumers would look more to jewelry purchases as a hedge against inflation and exchange rate instability.
HSBC, Deutsche Bank, Goldman Sachs and JPMorgan Chase will all be helping Chow Tai Fook with its upcoming Hong Kong listing following the jeweler’s 2010 bottom line of over 3 bln yuan and expectations of a 30% improvement this year... all of which would give it a P/E ratio of over 30 times come listing time.
This would give Chow Tai Fook a market capitalization of over 100 bln yuan, granting it an instant No.1 ranking among Hong Kong-listed jewelry counters.
The report added that analysts also generally agree that Chow Tai Fook’s upcoming 23 bln yuan Hong Kong listing will not be buffeted by the economic uncertainties gripping Europe and the US as the firm is highly leveraged to benefit from the robust growth of jewelry sales in the PRC.
In fact, market sources say that Chow Tai Fook’s listing plan is proceeding full steam ahead with no intention by the jeweler to postpone its IPO to next year, or to reduce capital raising expectations.
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