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Speaking to investors at CIMB Investment Centre on Tuesday, Hu An Cable CEO Dai Zhixiang explained the prospects of China's power generation and energy renewal industries. Photo by Pearl Lam.

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FEW SINGPORE IPOs these days are high-tech market leaders riding simultaneously on strong growth in several sectors. Hu An Cable, listed in Feb this year, is one of them but it has been overlooked by the market: its historical PE is 7.04.

In comparison, cable makers of various sizes listed in Shanghai and Taiwan are trading at 10X to 50X PE.

"Singapore investors don't understand our business," lamented CEO Dai Zhixiang at CIMB Investment Centre on Tuesday. "On the other hand, there are many cable makers in Taiwan and quite a number are listed. Many shareholders hope that we go the TDR route due to its richer market valuation."

Hu An’s technology sophistication entitles it to preferential tax treatment at 15%, instead of 25% that most cable makers pay.

It is one of the 10 largest cable and wire makers in China, with the widest product range.

Since all infrastructure construction uses cables, Hu An is riding on several high-growth industries - power generation, energy renewal, transportation and manufacturing - as CEO Dai Zhixiang highlighted at the CIMB roadshow to increase investors’ awareness about his company which he co-founded with his spouse and his father in 1998.

Cable makers

Market Cap S$m

Revenue
S$m

Operating
margin

PE

Listing

HU AN CABLE

241.0

292.1

13.2%

7.04x

SG

BAOSHENG SCIENCE

558.5

824.5

3.4%

27.9x

CN

GUANGDONG NANYANG

726.0

268.3

14.0%

27.5x

CN

ZHONGLI SCIENCE

1,459.5

359.9

13.1%

30.9x

CN

ZHEJIANG WANMA

1,113.8

314.3

5.9%

55.0x

CN

TBEA

7,024.5

3,125.5

12.3%

18.5x

CN

Data source: Bloomberg / NextInsight, 22 Sep 2010


Below is a summary of the investors’ questions during the meeting, and Mr Dai's replies:


Q: How long will you enjoy preferred tax status at 15%?

This is subject to review every 3 years. Our “High-advanced Technology Enterprise” status is no easy feat. Most cable makers have to pay tax rate of 25%.

Q: How will you deal with copper price increases?

As it is our policy to buy raw materials immediately after clinching a cable order, copper price volatility risk lies with our suppliers. A second policy we adopt is to purchase 20% more if we anticipate rising copper prices, 20% less we expect if falling prices

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Infrastructure demand will also be boosted by development of untapped oil resources in northwestern China and Inner Mongolia, said CEO Dai Zhixiang. Photo by Pearl Lam
Q: You are one of China's top 10 cable makers. What is the size of your largest competitor?

The largest power cable company is 10 times our size, but they have gone into property development. We are confident of our position as a manufacturer with the widest range of products - over 18,000 cable products each year. While we are giving more focus on high-end cables, each project still requires us to supply the less lucrative low-end cables.

Q: Where do you get your copper supplies?

60%-70% of China's copper is imported. We purchase ours from the Shanghai Futures Exchange.

Q: Why do you want to issue TDRs so soon after raising money from your IPO in Singapore?

Singapore investors don't understand our business. On the other hand, there are many cable makers in Taiwan and quite a number are listed. Many shareholders hope that we go the TDR route due to its richer market valuation.

We also intend to step up on our investor relations activities to increase the community's awareness about us.

Q: How many new shares will you issue for the TDR?

We are listing 120 million TDRs, which will be backed by 150 million shares. Of this, there will be 75 million new shares and 75 million vendor shares.

Q: Who are your major shareholders?

Our largest shareholder is Mr Yueng Wai Wing, who is based in Hong Kong. He is a venture capitalist and also has other businesses, and holds 27.5% in Hu An. I am the second largest shareholder, with a 26.7% stake. There are also some Singapore funds holding less than 5%. Oceanus' chairman, Dr Ng Cher Yew, is one of our shareholders.

Q: What is your dividend policy?

We target a payout ratio of 15% or more. This may increase after we complete our capacity increase.


Related story: HU AN CABLE, OTTO MARINE: What analysts now say

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