HK Jeweler Chow Tai Fook Plans To Raise US$3.5 Billion In Massive IPO This Week
Hong Kong jeweler Chow Tai Fook has over 1,300 locations, mostly in mainland China
Despite an IPO environment described by the BBC this summer as “faltering,” nearly six months after debuts by the likes of Samsonite and Prada, it seems that high-end brands are still lining up to list on the Hong Kong stock exchange. Following a nearly year-long tear of IPOs that saw brands like L’Occitane and the Chinese cosmetics powerhouse SaSa International successfully list in Hong Kong, CLSA Asia Pacific Markets regional head of consumer research, Aaron Fischer said this past February that Hong Kong-listed retailers are best positioned to capture the mainland’s demand for high-end merchandise. Pointing out examples such as Emperor Watch & Jewellery, SaSa and L’Occitane, and the department store operator Parkson Retail, Fischer said Hong Kong-listed companies are likely to benefit greatly from growing spending power in the Chinese mainland, since “a greater percentage of their earnings are derived from Chinese customers.”
However, after a string of disappointing debuts in Hong Kong, crimped by investor concerns about inflation, Josef Schuster of Chicago- based IPOX Schuster LLC, told Bloomberg in June that “Companies considering a Hong Kong listing are now in the wait-and-see mode.”
Apparently some measure of confidence has returned, though, as luxury brands seem to have regained their appetite for Hong Kong IPOs. Of the brands planning to list in the city in the months ahead, all eyes are on companies like Hong Kong’s Chow Tai Fook Jewelry Co. and Britain’s Graff Diamonds, which have growing clout in the Greater China luxury market. But which of these brands would benefit the most from listing in Hong Kong?
Chow Tai Fook’s is set to be the largest in size and scope. According to a company release, Chow Tai Fook — the world’s largest jewelry chain, with over 1,300 locations throughout Asia — is planning to raise upwards of US$3.5 billion in its IPO, for which the company is currently in the premarketing phase ahead of a planned December 15 listing. Wholly owned by the well-known, octogenarian tycoon Cheng Yu-tung (鄭裕彤), Chow Tai Fook is rolling the dice on anticipated growth within mainland China and increased spending by Chinese tourist-shoppers in Hong Kong and elsewhere. As the AFP writes today, a $3.5 billion listing on the part of Chow Tai Fook would make it the largest IPO globally since the Spanish bank Bankia SA’s $4.4 billion listing in July:
Peng Wei for Graff Diamonds (Image: Robb Report Lifestyle)
In addition to Chow Tai Fook, Graff Diamonds, another jeweler with arguably greater name recognition on a global scale, is planning a US$1 billion Hong Kong IPO within the next year to fuel greater expansion in the China market. From BusinessWeek:
As BusinessWeek points out, China is currently the second-largest buyer of diamonds worldwide after the United States. While demand in the US rose seven percent last year, however, China recorded a 25 percent surge. As Jing Daily wrote in September, in response to this booming demand, major diamond retailers like Harry Winston, Van Cleef & Arpels, Tiffany & Co. and others have geared up for massive expansion in mainland China over the past two years, as diamond engagement rings have become a “must” for young couples, luxury consumption has surged, and wealthy urbanites have started to see the precious stones as good “portable investments.” Though Graff Diamonds is comparatively new to China, with only two locations in mainland China, the company has poised itself for success in China, first gaining a foothold in Hong Kong, then plotting a deliberate expansion into Beijing and Shanghai, and in May linking up with the Chinese artist Peng Wei on its latest advertising campaign. If Graff’s planned $1 billion IPO does go through, and attracts local investor interest, the company’s China expansion efforts could go far beyond its upcoming Macau and Hangzhou flagships.
Graff and Chow Tai Fook aside, there seems to be no shortage of major brands looking to list in Hong Kong, though several are likely still taking the “wait-and-see” approach. Other companies rumored to be mulling Hong Kong listings include Britain’s Aston Martin and Burberry, Coach from the US, and Italy’s Ducati. Over the past few years, Burberry and Coach have been among the most aggressive premium international brands operating in mainland China, and as such a Hong Kong listing makes sense as a means to further intensify this expansion into less mature second- and third-tier cities. Aston Martin has also placed greater attention on the China market over the past 18 months, which isn’t surprising considering the automaker sold 120 vehicles in China in 2010, (a 50 percent rise over 2009) and China is expected to become the automaker’s third-largest market within the next few years. Aston Martin currently operates four dealerships in mainland China, and the company has indicated that it may consider opening a factory in China once sales there reach 2,000 a year, though this likely won’t happen within the next five years.
Chow Tai Fook boutique at The Gardens, Mid Valley City in Malaysia (Image: Nick Chan)
Looking at the short term, which of these companies can we expect to make out best in its Hong Kong IPO? Considering its China-centric business model, through which it targets Chinese shoppers within mainland China and Hong Kong and in Asian destinations frequented by Chinese tourist-shoppers, we’d say Chow Tai Fook is likely a comparatively safe bet. Currently, Chow Tai Fook locations are limited to Hong Kong, Taiwan, Macau, the Chinese mainland, Singapore and Malaysia — all of which, with the exception of Malaysia, have predominantly ethnic Chinese populations. (Though Chinese-Malaysians make up about 23 percent of that country’s population.) Name recognition among these consumer segments is quite high, by and large, and Chow Tai Fook’s 24K gold-heavy collections fit with the Chinese luxury consumer preference for jewelry as a store of value as well as something to look at and enjoy.
Tourism trends also play in Chow Tai Fook’s favor. In recent years, Singapore has become a popular high-end destination for mainland Chinese gamblers and luxury shoppers, and as such Chow Tai Fook’s presence there exposes the brand to the growing spending power of outbound Chinese tourists. Additionally, unlike truly global brands like Graff, Coach, Burberry and Aston Martin — which still rely heavily on consumers in Europe, North America, the Middle East and Russia — Chow Tai Fook is far more insulated from global fluctuations in luxury spending.
However, just because Chow Tai Fook is a comparatively safe bet doesn’t mean it’s a sure thing. As MarketWatch notes this week, the company’s family-owned status and somewhat opaque structure means it’s “buyer beware”: