Friday, October 29, 2010

Today's IPO looks intresting - GAGA - Delayed open

Le Gaga's (GAGA) IPO Prices at High End of Expected Range
Oct 29 at 09:22
Profile hits: QU2

      Earlier this morning, GAGA's 10.9 mln share IPO priced at the high end of
its expected range, coming in at $9.50 vs. the $7.50-$9.50 expected range,
to raise total gross proceeds of $103 mln. The lead underwriters on the deal
were BofA Merrill Lynch and UBS... GAGA is one of the largest greenhouse
vegetable producers in China, selling over 100 varieties of vegetables, such as
cabbage, tomatoes, peppers, broccoli, potatoes, and cucumbers, to name a few.
The co markets to wholesalers (55.4% of sales), institutional customers (33.7%),
and supermarket chains (10.8%) in China and Hong Kong. Its top customers include
Wal-Mart, and the country's largest grocery chains, including Wellcome,
ParknShop, and Vanguard. GAGA operates 16 farms with an aggregate area of 1,257
hectares in the Chinese provinces of Fijian, Guangdong, and Hebei. Fourteen of
these farms are located near its target markets in southern China... For the
three months ended June 30, 2010, GAGA's revenue grew roughly 55% to RMB 83.3
mln. Unfortunately, the co's strong sales growth was undermined by a 81% surge
in the cost of inventories sold, to RMB 79.3 mln. This significant increase
was mostly driven by higher farmland operating expenses. Consequently, GAGA's
operating margins dove to 28.3% from 52.8%, and operating income slid 17%
year-over-year to RMB 23.6 mln... Based on the success of prior
consumer-oriented, China based IPOs (CCSC & MCOX), GAGA's strong pricing does
not come as a surprise. GAGA's story isn't completely "clean" due to its eroding
margins as it builds more greenhouses, but interest should remain high based on
its growth potential and investors' strong appetite for emerging market IPOs.

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