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Midea roadshow takes off amid market gloom

By Zhou Yan (China Daily)
Updated: 2009-07-30 08:00

Consumers check ou Midea products at a shop in Beijing. The company plans to raise some 3 billion yuan by issuing 189 million new shares. [CFP]

Consumer durables maker Midea's roadshow to market its new shares kicked off yesterday amid a gloomy stock market, with the benchmark Shanghai Composite Index falling by 5 percent, the biggest one-day decline since early this year.

The latest market performance has cast a dark shadow over the company's shares, which have been on free fall after it announced its plan to raise some 3 billion yuan ($439 million) by issuing 189 million new shares to the public at 15.75 yuan apiece.

The low issue price compared to the market price of the company's shares has triggered a selling spree that brought their prices down 11.3 percent in the past three trading days to 15.93 yuan yesterday.

"Institutional speculators started raising capital by selling Midea's shares on the secondary market to purchase the lower-priced newly-issued shares," said He Qifeng, an analyst at Great Wall Securities.

Related readings:  Midea plans share float to raise funds  Midea net profits down 14.8% in 2008  Midea buys 24% Little Swan stake  Midea to buy four firms from parent

He said Midea's stock price would gain when the firm announces its second-quarter earnings, which are expected to be positive given the rising sales of its air-conditioners this summer.

China Merchants Securities upgraded its ratings on Midea to "strongly recommend", expecting its earnings per share to hit 0.74 yuan in 2009 from last year's 0.55 yuan.

The company said in its initial new share issue scheme released in 2008 that the raised capital would be used for 10 projects, including extending production capacity for air-conditioners, and acquiring stakes in three white goods makers.

So far, most of its projects have been financed through its own capital and bank debt. Midea's board secretary said at an investor meeting on Tuesday that most of the raised money would be used to repay bank debt.

Midea would continue to hike production capacity of refrigerators and washing machines, Guodu Securities' analyst Wang Jingle said, adding that the company's debt-asset ratio would fall to around 50 percent this year from 70 percent in the first quarter after the new capital comes in.

"The recent corrections look reasonable, as the new share issue has been absorbed by the market in the past few months before the official announcement was made," Wang said.

Indeed, Midea's shares rose 43.1 percent during the past one and half months, while the durables sector only rose by around 14 percent in the same period, according to financial information provider Wind Info.

Midea's profitability was much lower than its strongest rival Haier, particularly in the refrigerators sector, with less than 1.5 percent profitability when compared to Haier's around 2 percent, said Great Wall's He.

"The major target for Midea is to upgrade its product lines of refrigerators and washing machines from the low and mid-end markets," He said.