Hai Xing Shipping Company Ipo Case Study

1872 Words May 25th, 2013 8 Pages
FINA 6040E

Investment Analysis and Portfolio Management

Case Study

Shanghai Hai Xing Shipping Company

Andrew Fung (1009010180)

Yiu Tsz Yan Brenda (1155009775)

Gavin Niu

Lam Yung Wai Matthew (1155009776)

“H” Shares in 1993-1994

In the 1990’s, there was around 100,000 state owned enterprises (SOE) in China and over half of them were losing money. Since 1992, most of the SOEs were given freedom to reform and extensive new investment was required for the action. IPO is one of the effective channels to raise capital in the market. Beside the Shanghai Stock Exchange and the Shenzhen Stock Exchange, SOE also sought listing out of the PRC and Hong Kong became their first destination.

In 1993, 5 “H”
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This is the twelfth H-share issue on the HKEX. Total 1,080 million “H” shares would be offered and the total market capitalization is HK$1,575 million.

GAVIN, Please insert the below table in your part

From table 2, we could calculate that:

Coefficient of beta between H Share and comparable Hong Kong Firms: 1.95
Coefficient of P/E between H Share and comparable Hong Kong Firms 0.35
Our estimation of the value of SHXS’s equity
As our ultimate goal is to make a decision about whether it is worthwhile for us to make an investment on SHXS’s equity, we need to estimate the fair value of SHXS’s equity first by adopting our estimation of this company’s required rate of return (‘E(r)’), which is 38.7%, and then compare our result with SHXS’s IPO offer for ‘H’ shares, which is HKD1.46 per share.

Our procedures are as follow:

1. Obtain SHXS’s financial data of Profit After Tax (‘PATt’), Depreciation (‘Dept’), Capital Expenditure (‘CapExpt’) and Net Turnover from the period between Year 1994 to Year 1997.

2. Since CapExpt is denominated in HKD while the rests of the selected data are denominated in RMB, we can apply the given exchange rate of HKD 1 = RMB 1.1037 to convert the CapExpt into RMB for comparable calculations. We will eventually convert our estimation about SHXS’s equity value back to HKD again by using the same exchange rate.

3. We have been informed that Net Working Capital (‘NWCt’) is about 13% of the Net Turnover for

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