Feathers First

In Frankfurt, Ducks on the DAX

Good thing they had Peking Duck for dinner. Source: Plainpicture
Not a scene from the Snowbird IPO in Frankfurt.
  • Why it matters

    Why it matters

    The Frankurt listing of Snowbird, if successful, could lead to a flood of IPOs by Chinese companies in Germany.

  • Facts

    Facts

    • Chinese authorities froze IPOs in October 2012. The freeze was lifted in January but 800 Chinese companies are waiting to come to market.
    • The German stock exchange has courted Chinese companies and has a Chinese-language version of its website.
    • There are already more than 20 Chinese companies listed on German stock exchanges.
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    Audio

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Changzai Yan is not worried about the source of his downy feathers.

“As long as the Chinese eat ducks and geese, we won’t run out,” said the founder, chairman and managing director of the Chinese firm Snowbird.

He always carries a small, glass box full of fluffy goose down when he appears before investors to tout his initial public offering. He hopes taking the company public with help it become a global leader in the down clothing and bedding products industry.

Snowbird is seeking an IPO on the Frankfurt Stock Exchange, where a number of Chinese companies already are listed. The bathroom and kitchen fittings manufacturer Joyou, for example, presently has a market capitalization of just under €300 million ($386.5 million). It listed in Germany in 2010.

Snowbird seeks to join the same league starting this week, with 10 million shares going on sale to investors at prices ranging from €5.50 to €6.00. If all shares are sold at these prices, the company will reach a valuation of up to €240 million.

While so much of the financial world is fixated on the public stock issues of Internet companies such as Alibaba, China’s largest online commerce company, and Zalando, the German online fashion retailer, Mr. Yan and his chief financial officer, Kok Weng Lam, are touting the enormous growth potential in the down market.

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Snowbird’s income grew by more than 70 percent in the first half of 2014 to €78 million. Earnings before taxes and interest increased more slowly to €22 million. But the upside for the company is enormous, Mr. Lam said, offering an example from his home country. Currently, only one percent of the Chinese population sleeps with the kind of down duvet that has become the standard in Germany, Japan and the United States. If the number increases by only 10 percent, the Chinese market will increase tenfold to more than €30 billion, and there are estimates seeing a doubling of the domestic market in the next five years.

For now, the market remains quite fragmented. China represents about 80 percent of the world’s down production with some 4,000 companies active there. Among exporters, Snowbird has a share of just 1.3 percent, but the quality down segment in which Snowbird specializes, the number rises to 7.4 percent. The company has the capacity to produce 2,300 tons of down per year – the largest in the world – and with a sewing plant soon to open its capacity will increase fourfold to some eight million units.

This suggests recent sales amounting to €137 million should dramatically increase in the next few years. Additionally, Mr. Lam does not rule out Snowbird acquiring smaller down producers, but says there are no firm plans.

With money from the share sale, Snowbird wants to square off with Bosideng International Holdings Limited, the Chinese market leader in down clothing.

The company founder, management and one investor from Hong Kong want to retain majority ownership after going public. In addition, stockholders must pledge not to sell any shares in the next three years. This strategy is designed to gain the confidence of investors, an important consideration since there has not always been complete transparency in all Chinese IPOs. During the financial road show in Asia, at least, the response was positive, said Alexander Tietze of CM-Equity AG, which is helping with the public offering. “The feedback was very encouraging,” he said.

Why is a Chinese firm issuing an IPO in Germany? Mr. Lam cites the transparency in the Prime Standard Segment on the Frankfurt Stock Exchange, which are companies that comply with international transparency standards, and with the Xetra electronic platform for trading securities, where liquidity is great and transaction costs low. In China, there is a bottleneck as some 800 companies are trying to go public at the same time.

With the help of funds from the share sale, Snowbird wants to square off with Bosideng International Holdings Limited, the market leader in down clothing. The Chinese competitor has annual sales of €1.17 billion, which is roughly equal to estimates of its market value. Moncler, the privately held French-Italian clothing company, enjoys a much higher market capitalization of about €3 billion and has annual sales of about €580 million, though the company is positioned more as an international fashion label than in down-filled products.

If Snowbird wants to compete effectively, it must first make a name for itself, above all, in Europe.

This article was translated by David Andersen. Jeff Borden also contributed to this story. The author is Handelsblatt’s bureau chief in Munich, where he focuses on Allianz and Siemens, which are increasingly focused on China. To contact him: Hoepner@handelsblatt.com 

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