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Will Starland Shine In Its Proposed IPO?
Corporate Digest | 20 April 2012
By: Simeon Ang
Articles (125) Profile

China is still full of promise, in particular, in the municipality of Chongqing. That is possibly what soon-to-be-listed Starland Holdings would want you to know. Property developer and hotel operator, Starland, has jumped onto the initial public offering (IPO) bandwagon and intends to issue 22.2 million new shares in a Catalist listing. Starland hopes to repeat the success of the three previous IPOs that have already listed on the SGX this year, namely, Cordlife, Bumitama and Civmec.

The locally-owned firm intends to raise about $4.9 million from the issue and plans to use the proceeds for the acquisition of a land bank and for general working capital requirements. At the IPO price of $0.22, its historical price to earnings ratio would translate to around 14.2 times, while representing a 47.9 percent discount to its adjusted net asset value (NAV) per share. For its recent FY11 ending 30 September 2011, it recorded revenue of Rmb77.7 million ($15.4 million) and earnings of Rmb9.3 million ($1.8 million).

Although the numbers, in particular, the discount to NAV seem undemanding, what really stand out are the firm’s business operations. The firm engages in the development of integrated residential and commercial properties in Fuling, Chongqing. In a marketing pitch to retail investors, Starland said that it would be timely for investors to participate in its IPO, as they would be coming into the group at the start of its growth path.

Wait a minute, Chongqing? Isn’t this where the seed of a recent controversy was planted? Surely, political controversies come and go, but then again so do housing prices. Just this week, China released numbers that showed home prices were declining in a majority of cities across the country. Analysts seem to suggest that the price activity points to a deepening slowdown in the construction industry.

However, Starland takes heart in numbers that are specific to Chongqing. The gross domestic product (GDP) of Chongqing has consistently beaten the broader Chinese numbers. Its GDP rose 16.4 percent in 2011, compared with China’s official 9.2 percent growth. The city government predicted another 15 percent expansion this year. In addition, Starland points to the burgeoning Chongqing population, which is expected to grow to approximately 32.5 million by 2020. With approximately 750,000 new residents annually, Starland sees enormous potential for demand as the urbanisation rate hits 70 percent.

While it may be too early to pass judgement on the possible performance of Starland’s IPO, it is important that investors take note of all factors that may influence a particular company’s performance before making a decision whether to invest. It is imperative that investors not only rely on headline news to drive their investment dollar. Sometimes, it’s the company’s fundamentals that matter more.

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

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