The IPO Buzz: Szechuan IPO to Go

Country Style Cooking Restaurant Chain (CCSC – proposed), a fast-food restaurant chain in China’s Sichuan province, increased its proposed pricing terms to 5 million shares at $14 to $16 each last Thursday. That was an increase from its original terms of 5 million shares at $12 to $14 each.
Formed in 2007, Country Style Cooking specializes in quick-service Szechuan (or Sichuan) cuisine at affordable prices. (Bargain-priced Kung Pao chicken, anyone?) The company has grown to 101 restaurants in June 2010, UP from nine in January 2008. Its financials reflect growth and profits.
For the six months ending June 30, 2010, Country Style Cooking reported net income of $4.1 million on revenues of $48.1 million, compared with net income of $3 million on revenues of $31.6 million for the same period a year ago.
There’s more to this story.
Chinese Firecrackers
Since the end of June 2010 four China-based companies have gone public in the U.S. capital markets. Their IPOs have been on fire:
  • AutoNavi Holdings Limited (AMAP), a provider of digital map content and navigation and location-based solutions, priced its IPO at $12.50 per share on June 30. It closed on Friday, Sept. 24, at $16.70, UP 33.6 percent from its initial offering price.
  • China Kanghui Holdings (KH), a provider of orthopedic implants, priced its IPO at $10.50 per share on Aug. 10. It closed on Friday at $13.84, UP 35 percent.
  • HiSoft Technology International Limited (HSFT), a provider of outsourced IT and research and development services, priced its IPO at $10 per share on June 30. It closed on Friday at $25.57, UP 155.7 percent.
  • SouFun Holdings Limited (SFUN), an operator of a real estate Internet portal, priced its IPO at $42.50 per share on Sept. 16. It closed on Friday at $69.66, UP 63.9 percent.
The average aftermarket gain for these four Chinese IPOs was 67.1 percent.
To put that in perspective, consider this: The average aftermarket gain for all IPOs priced in the United States this year was 10.5 percent. (Note: This year’s IPOs have more than doubled the Nasdaq Composite Index’s gain of 4.94 percent for 2010 so far.)
Not surprising, the Country Style Cooking IPO looks to be the “pick of the week” based on a consensus taken from investment professionals.
Overall, bankers are planning to offer 10 IPOs this week. They are expected to raise $2.8 billion. If everything gets out the door, it will make this the busiest IPO week in two years and nine months. During the week of Dec. 10, 2007, 11 IPOs were priced, according to the U.S. Securities and Exchange Commission filings. That package raised $1.6 billion.
‘Increase A Deal, Double My Order’
Now it’s time to check out the numbers that tell the story behind that favorite Wall Street axiom: “Increase a deal, double my order.”
Over the last decade –- from 2000 through 2009 -– the new-issues calendar produced 1,825 IPOs.
Of that number, 559 deals were priced above their original filings terms (either adding more shares or increasing their offering prices or both). Their average opening-day gain was 56.1 percent. (Remember the IPO professional’s mantra: “Increase a deal, double my order.”)
On the flip side of that equation, 514 deals were priced below their original filings terms (either reducing the number of shares or cutting their offering prices or both.) Their average opening-day gain was 1.94 percent.
Conclusion: “Cut a deal, cancel my order.”
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.