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Shenzhen department store seeks up to 130m USD in HK IPO


10:55 am
June 29, 2010



posts 215

SHIRBLE Department Store Holdings, a Shenzhen-based department store operator, is looking to raise as much as 1 billion HKD (130 million USD) in a Hong Kong initial public offering (IPO) to fund its expansion in southern China.
In theory, growing wages in this part of the country make retailers more appealing, especially locally well-known brand names like Shirble, which has many loyal customers in Shenzhen.
But the share sale comes at a time when there are bigger names in the market competing for investor demand. Agricultural Bank of China is expected to absorb a lot of market liquidity with its massive A and H share IPO of up to 21 billion USD and Guotai Junan Securities' Hong Kong division hopes to pocket up to 2.31 billion HKD (296 million USD) from its Hong Kong share sale.
Shirble is offering 375 million shares, of which 315 million, or 84 percent, are new. The remaining 16 percent are secondary shares, which will be sold by its chairman, Yang Xiangbo. The offering price ranges from 2.11 HKD to 2.81 HKD, which translates into a price-to-earnings (P/E) ratio of 15 to 20 times based on the company's forecast earnings for 2010.
By comparison, Shirble's local competitor, Shenzhen-based Maoye Department Store, which listed in Hong Kong in 2008, currently trades at 27 times. Gome Electrical Appliances is trading at around 22 times.
Shirble plans to open eight additional stores in Guangdong and Hunan in the next three years, chairman Yang told Hong Kong reporters last week. He also said that the company will distribute 30 percent of its profit in the second half to public shareholders.
There are no cornerstone investors participating in the deal. The share sale is arranged by BNP Paribas, the final price is expected to be fixed Friday and the trading debut is scheduled for July 8.
Although founded as recently as 1996, Shirble is among the oldest stores in Shenzhen. The company operates 11 middle to low-end department stores in Shenzhen and in Hunan Province.
Rainbow Department Store, another local rival of Shirble, has outlets in the same kind of neighborhoods and targets similar types of customers, but it is listed in the A share market and trades at a forward P/E ratio of around 46 times.
Maoye, which operates high-end department stores in Shenzhen, didn't come to market at a perfect time either. It raised 343 million USD in a scaled-back IPO in Hong Kong in April 2008 after calling off its first attempt at a Hong Kong listing three months earlier as tough market conditions pushed down the share prices of its peers, making Maoye's valuation less attractive.
Shirble's net earnings increased to 20.6 million USD in 2009 from 14.8 million USD in 2007, it said in an IPO filing with the Hong Kong stock exchange. Analysts predict its net profit will be 27 million USD this year.
Currently, 10 of the company's department stores are operated on leased premises, while only one is located on premises owned by the company. It intends to continue operating stores mostly on leased premises, the company said in the statement.
Retail sales of consumer goods in China increased nearly eight-fold from 1.42 trillion RMB (209 billion USD) in 1993 to 10.84 trillion RMB in 2008, according to the National Bureau of Statistics of China. The per capita annual consumption spending by urban households more than doubled from around 5,309 RMB in 2001 to 11,242 RMB in 2008.


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