Sources told Reuters that YuanShengTai Dairy Farm or YST Dairy had priced its initial public offering at HKD 2.70 per share, a price below the mid-point of its marketing range of HKD 2.49 to HKD 3.18 per share. The 1.22 billion shares it will sell in the IPO will place the value of the IPO at HKD 3.29 billion or USD 425 million.
YST Dairy is the fourth largest raw milk producer in China. The deal had a price-to-earnings ratio of 17 times compared to that of Huishan Dairy's P/E ratio of 20 times when it raised USD 1.5 billion when it went public in September. Huishan Dairy is the second biggest raw milk producer in China.
KGI Securities Analyst Anson Chan said "Given that it's a smaller scale, it has higher execution risk, so it's understandable why investors would demand a lower price to give them more upside and give them a safety cushion." Sources told Reuters that the pricing for the YST shares left it wiggle room for a pop on its first trading day. It can be recalled that Huishan's shares dropped 10% in its September IPO. This encouraged underwriters to set a more reasonable price for YST, according to the people interviewed by Reuters.
China's three biggest dairy processors buy YST Dairy's raw milk. Two smaller companies are also customers. China's largest dairy firm, Mengniu Dairy Co Ltd, has agreed to become a cornerstone investor in YST Dairy's debut and is set to purchase USD 60 million worth of YST Dairy in its November 26 debut.
YST Dairy said it intends to use 75% of the funds raised from the IPO to construct five new farms. It will use 15% to develop its feed farms in order to give its cattle stable corn supply. The remaining 10% of the proceeds will be utilized as working capital.
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