More mainland companies are lining up for IPOs in Hong Kong despite a sluggish market and poor investment confidence. AP

SinoMedia Holding Limited, a privately-owned media advertising operator on the mainland, plans to raise up to HK$485 million in an initial public offering (IPO) in Hong Kong.

The company offers 139.4 million shares, containing 10 percent from the existing shareholders, at a range between HK$2.63 and HK$3.48, representing price-to-earnings ratio of 11.1 times to 14.7 times. Each board lot contains 1,000 shares.

Chairman Chen Xin said SinoMedia's main strategy is to strengthen its relationship with China Central Television (CCTV). Meanwhile, the company hopes to expand into digital media such as the Internet advertising business through acquisition.

Established in 1999, SinoMedia is one of the advertising agencies for the nationwide network of CCTV and 9.95 percent of the company's revenue comes from its tie-up with CCTV.

The company has the right to sell advertisement time for several TV programs in key channels like CCTV 1, 2 and 3.

The company sold approximately 4,518, 5,525 and 10,450 minutes in 2005, 2006 and 2007 respectively.

SinoMedia's 2007 net profits were 42.78 million yuan, down from 2006's 61.32 million yuan due to the accounting loss induced in the conversion of convertible redeemable shares by a pre-IPO investor Bain Capital, which will hold 21 percent stakes in the company after the IPO. Its 2007 net profits were 69.2 million yuan excluding that part.

The gross profits margin, however, dropped from 41.1 percent in 2006 to 34.8 percent in 2007 due to the expansion into regional TV stations in Jiangsu province and Shenzhen, Guangdong province in 2007, selling 25,319 minutes and 2,187 minutes respectively.

Chen said the company has gained experience in cooperating with regional TV stations and believes that it has established a good foundation for future cooperation.

Meanwhile, Chen said the company has already secured 385 million yuan of business at the end of 2007 for this year's advertising minutes on CCTV.

The company has preferential right to renew terms with CCTV every year.

The company plans to distribute 20 percent of its net profits after listing and estimates its 2008 profits to be not less than 120 million yuan.

Seventy percent of sale proceeds will be used for acquisitions of other TV media advertising operators that could enhance or complement the company's existing business; and 20 percent will be used to acquire more advertising resources from CCTV, other TV stations and digital media.

The TV advertising agency, previously known as CTV Golden Bridge, has started investors' roadshow for global offering only one day before the four-day retail offering today.

Morgan Stanley and Cazenove are the joint global coordinators, joint bookrunners and joint sponsors of the deal. The company's shares will start trading on July 8.

Ronald Wan, managing director at BOCOM International, said that the company has a niche in its business and this may attract some speculation. But its long-term prospect really depends on sustainability and exclusiveness.

(HK Edition 06/25/2008 page3)