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DYP a fast growing Chinese offset-printing equipment manufacturer

December 10, 2009 – Comments (3)

Irrational investors: a contrast of Duoyuan Printing and STR Holdings IPOs

http://seekingalpha.com/instablog/480541-southhill-partners/35111-irrational-inv\
estors-a-contrast-of-duoyuan-printing-and-str-holdings-ipos
Nov 10, 2009 12:39 PM | about stocks: DYP, STRI, FSLR

Two IPOs debut with exactly opposite results attracted my attention last
Friday: Duoyuan Printing (DYP), a fast growing Chinese offset-printing equipment
manufacturer, to sell 5.5M shares at $8.5, whose stock closed down 8.6% at
$7.77. The other is STR Holdings (STRI), a manufacturer of encapsulants for
solar panels, to sell 12.3 million shares at $10 a share, whose stock closed up
31% at $13.10.

Since I did look into both companies before their IPOs, I find this
outcome very interesting.

In my opinion, Duoyuan Printing (DYP) is a very sweet deal at the $8.5
offer price, let alone $7.77. My previous post here details why.

STR Holdings (STRI), although appears to be attactive from its roadshow
presentation, actually has a few things that make me frown, after I dig deeper
into its prospectus:
- The company had a net tangible asset of ($5.72) per share, totaling
$(223.4) million, prior to the IPO. For those who don't know accounting, this
means if the company is liquidated today, the shareholders won't get anything
back, as it actually owes more than its asset. Would this prevent me from
investing in a company? No necessarily. But I'll be very cautious.
- 73% of the total shares sold, or 9 million shares, came from selling
shareholders including the executives, so the company only gets 27% of the total
IPO proceeds. When the private owners and executives are eager to sell, I'll be
cautious buying into it.
- The solar segment revenue declined 26% in the first half of 2009.
Although impacted by the financial crisis, the world output of solar panels
still grows in 2009, due to government stimulus all over the world. I would
imagine the output of solar panel encapsulants be highly correlated with the
output of the panels. Such a big decline in revenue concerns me.

The following table sums up some simple facts of the two IPOs, without
getting much into the valuation of both stocks.



Strictly speaking, these two companies are not comparable, as they belong
to two totally different industries. However, I find this table quite helpful
and revealing.

Duoyuan Printing appears to have a much stronger balance sheet, with no
debt, while STR Holdings has tons of debt. Although both companies presented an
appealing growth story: Duoyuan Printing's seems to be more consistent, while
STR Holdings experienced some recent decline in revenue not very well explained.
No shares are to be sold by the executives of Duoyuan printing, while all
executives at STR Holdings are selling some shares. Surprisingly, it was Duoyuan
Printing that fell on the day of IPO, while STR Holdings went up 30%.

Was Duoyuan Printing priced too high and STR Holdings priced attractively?
The answer is still no. Duoyuan Printing is a growth stock very attractively
priced. STR Holdings' prospectus shows it earned $6.2M in the first half of
2009, and its market capitalization is $549M. Even assuming the earning improves
in the second half 2009, it doesn't appear to be cheap, noting that right now
even a well established solar stock like First Solar (FSLR) is only trading at
16x 2009 earnings.

It is puzzling for me to see that the investors shunned an attractive
Duoyuan Printing, but were brave enough to jump into STR Holdings. I hope people
do know what they were buying into, not just for the hot "solar" tag on it.


Disclosure: Long DYP, no positions in STRI, FSLR

Themes: Long Ideas, IPO Analysis Stocks: DYP, STRI, FSLR