IPO Stocks: China Distance Education Holdings Limited
www.cdeledu.com
(NYSE:DL)
Scheduled for week of July 28
$88 million estimated proceeds
$354.6 million estimated post-money valuation
When the Olympics are over, there will still be a ton of work to do in China, and people with an education will have the best opportunity. The country’s educational infrastructure isn’t the best it could be, thanks to the Cultural Revolution, and that creates opportunities to for entrepreneurs who want to train China’s emerging managerial class. China Distance Education offers online training programs for occupational and professional certification, to prepare people for college entrance exams, and in foreign languages. About 180,000 people were enrolled at the end of June 2008, compared to 144,000 for June 2007. That is, of course, just a speck of the Chinese population.
China Distance Education has been mostly profitable, too, but it’s small. In 2007, on a U.S. GAAP basis and using U.S. dollars, the company had $5.4 million in net income on $11.8 million in revenue. The 149 courses carry fees averaging less than $50 each, often paid for through pre-paid study cards that the company sells through a network of local distributors. The company charges higher fees for preparation courses for high-level professional exams, but it offers a refund to students who not pass them. The courses consist primarily of video lectures given by instructors at traditional universities, supplemented with online slides with notes and a network of tutors who can answer questions and provide support on the subject matter. The company and its distributors also sell textbooks and workbooks designed to complement the online material.
If China Distance Education were headquartered anywhere but China, the CEO would be reading Inc. and Entrepreneur instead of hobnobbing with investment bankers from Citi and Merrill Lynch. But it’s China, and China’s hot. China has over a billion people, most of whom want to improve their lot in life, and low-cost Internet-based education is a way to do that. The company doesn’t have a pressing need for the money, although it will fund expansion, and management is keeping open the possibilities of growth via acquisition; it has made two acquisitions of online course companies in the past.
The potential for education providers in China is huge, but so is the valuation on China Distance Education. In fact, that valuation is the biggest problem with the deal. It assumes a lot of growth in revenues and market share that might not come to pass. The deal is risky, but that’s not necessarily bad for someone who understands that going in.
Upcoming IPOs
China Mass Media International Advertising (NYSE:CMM); www.chinammia.com; scheduled for week of July 28; $89.3million estimated proceeds; $296.1 million estimated post-money valuation: China Mass Media is an independent ad agency that works closely with China Central Television (CCTV) to operate special promotions and events, including China’s annual New Year’s television extravaganza and the 2008 Olympic Games. They also handle advertising sales for CCTV’s international channels, which mostly appeal to Chinese living overseas. In U.S. dollar and U.S. GAAP terms, the company earned $29.7 million from $39.7 million in revenue in 2007, and it’s been profitable for several years. The questions are whether it can maintain its growth in a post-Olympics China, especially if the government were to allow CCTV to have competition.
Ellora Energy (Nasdaq:LORA); www.elloraenergy.com; scheduled for week of Aug. 4; $81.7 million estimated proceeds; $944.3 million estimated post-money valuation: How tough is the IPO market? It’s so bad that Ellora Energy filed its IPO in November of 2006 and changed underwriters twice. The company develops oil and gas properties in Texas, Louisiana, and Kansas with proved fuel reserves of 229 billion cubic-feet equivalents. For the year ending Dec. 31, 2007, the company had $3 million in net income on $80.9 million in revenue and another $20.9 million in depreciation, depletion, and amortization. The primary use of proceeds is reduction of the company’s $150 million in debt outstanding.
Recently Priced IPOs
North Asia Investment Corporation (NYSE:NHR.U); priced July 23; $5 million estimated proceeds; $65 million estimated post-money valuation: SPAC-o-rama continues into the second half of 2008. This special purpose acquisition company plans to find takeover candidates in South Korea and China. The company’s chairman, Allister George Morrison, is the retired chairman of Morgan Stanley Asia; the CEO, Thomas Kang Chan-Soo, worked for several investment banks and private equity firms. Will those connections help them find good deals?
