Initial Public offering

Beijing Enterprises

Initial Public Offering

Professor. Huang

2012/4/5

09级金融

叶露 0091123041

朱佳丽 0091123033

王佳佳 0091123024

王皖玥 0091123021

程艺涟 0091123042

涂妍灵 0091123044

Contents

Part One Qualitative Analysis --------------------3

Case Overview -------------------------------------------3

General Economic Environment ------------------------3

Industry Analysis ------------------------------------------6

Operation Analysis --------------------------------------7

Part Two Quantitative Analysis ------------------9

Price-Earnings Ratio Method (市盈率法) -------------9

Net Asset Ratio Method (净资产倍率法) -------------10

Discounted Cash Flow (现金流折现法法) ------------10

Part Three Conclusion：Price Suggestion ---12

Part One Qualitative Analysis

1. Case Overview

Company: Beijing Enterprises Holdings Limited

 Market: Hong Kong Stock Exchange

 Date of IPO: 29 May, 1997

 Industry: consumer products, services, infrastructure

 Category: Red Chip Company

 Shares to be issued under the Public Offer: 150,000,000

 Lead managers of the issue: Peregrine Capital and Morgan Stanley

 Target: price the IPO to raise the maximum possible capital through the offer

2. General Economic Environment

(1) Chinese Mainland

Policy shift

For several decades, the PRC followed a policy of complete isolation from the rest of the world. The economy was state-run and centrally planned. Around the late 1970s, China made a shift---experimenting with economic reforms.

 "Reform and Opening up"

 "Socialist Market Economy"

 Move slowly toward a market-oriented economy

The achievements and challenges of market-oriented reforms

(a) China- import, export & forex (1985 to 1995)

Export and import volume rose and soared especially from 1993 to 1996.

Balance kept favorable for the years 1995 and 1996 ,with figures of RMB91.2 billion and RMB100.4 billion respectively .

Enjoined the privilege of having had Most Favoured Nation status accorded to it by the US.

(b) China - CPI & Inflation 1985 to 1996

RMB was volatile to an extent till 1994 and had been steady thereafter, depreciating only marginally against the US dollar.

(c) China - GDP (bn) Rmb

China GDP rose from about 3000 billion RMB in 1988 to 17000 billion RMB in 1996

(d) China- Exchange Rate Movement June 1992 to Mar 1997

Steady exchange rate due to strict foreign-exchange controls by the SAFE

Economic indicators for the PRC-1990 to 1996

(e) legal system had not kept pace with the economic reforms.

Relatively inexperienced judiciary in implementing extant laws

Uncertain and sporadic enforcement of the law

There is no treaty or arrangement that provided for the recognition and enforcement in the PRC of court orders promulgated in other countries with which the PRC had business relations.

(f) Not freely convertible currency.

Relatively inexperienced judiciary in implementing extant laws

There were little chance of mainland's stock exchanges being internationally recognized

Looking outwards---Hong Kong

(2) Hong Kong

Background

China's currency was not freely convertible

China need cash to continue its economic reforms

The companies listed on the New York Exchange yielded little because of the small volumes traded

Hong Kong--China's Gateway

Capable of raising enough money for mainland

Lawyers, accountants, analysts and merchant bankers are internationally recognized.a

Already earned a place among the world's largest and most active markets in futures, foreign exchange and gold trading, etc.

Analysis of Red Chips

● Red Chips were extensions of governmental organizations, with their financial disciplines, in terms of investments and cash rising, being laid down by a holding company and a controlling government body. These companies came into existence in two ways. One way was through the back door by buying an inactive Hong Kong-listed company. The other was to incorporate a holding company in Hong Kong and have it listed on the Hong Kong Stock Exchange.

● Red Chip companies usually bought assets from its parent as a kind of asset injection, which ultimately translated into better profits and higher dividend pay-off. Red Chips typically bought operations for only five to ten times their earning, while

...