The IPO Buzz: Last Call for Alcohol

China New Borun Corporation(BORN – proposed) is a producer and distributor of corn-based edible alcohol, based in the People’s Republic of China. The company’s products are sold as an ingredient to producers of Baijiu – a grain-based distilled alcoholic beverage, whose name means “white liquor.” Baijiu is sold throughout China in retail stores, bars, banquet halls, restaurants and other locations where alcoholic beverages are consumed, such as residential, business and social settings.
China New Borun plans to offer 5.5 million shares at $12 to $14 each to raise $162.5 million. The IPO is scheduled to be priced sometime during the week of June 7.
The Fundamentals
The company has been experiencing rapid growth in net income and revenues. Look’s at 2009’s results versus 2006’s.
For the year ending Dec. 31, 2009, China New Borun reported net income of US$24.4 million, UP 542.1 percent from US$3.8 million for the year ending Dec. 31, 2006.
For the year ending Dec. 31, 2009, China New Borun reported revenues of US$155.4 million, UP 346.6 percent from US$34.8 million for the year ending Dec. 31, 2006.
The Common Stock
In the U.S. financial markets, the alcoholic beverage index – Beverages (Alcoholic) – was UP 106.6 percent over the last 52 weeks. That was a much better showing than the underlying stock market.
The S&P 500 Index was up 13.3 percent over the same period of time.
The Caveat
The one negative in the equation has been the poor showing of Chinese IPOs in the U.S. capital markets.
Over the last 12 months, investment bankers have priced 17 Chinese IPOs in the United States, according to the Securities and Exchange Commission’s filings. As of Friday, June 4, 2010, five had closed above their initial offering prices. The average loss for the 17 was 13.99 percent. Once again, the S&P 500 was a winner, with a 13.3 percent gain over the same period of time.
So far in 2010, seven Chinese companies have offered their IPOs in the United States, three have been postponed and another two were withdrawn. As of Friday, only two were in the winner’s circle, and the seven had an average loss of 9.37 percent. At Friday’s closing bell, the S&P 500 was down 4.59 percent for the year.
A Liquid Asset
Nevertheless, there’s no way around it. People like to drink. Consider the alcoholic demand in 1950 in a small town in Idaho’s Panhandle near the St. Joe National Forest. The town’s name was Clarkia. At the time, it boasted a population of 35, and had 10 two-story buildings.
Five were saloons.
For the curious, one was the general-goods store/post office.
And the other four? Each had frilly curtains with girls leaning out the windows waving to the lumberjacks as they rolled into town from their logging camps. You’ve got to love that ratio.
Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.