Since the start of 2010, $80.5 billion worth of shares have been sold in Hong Kong, compared with $67 billion in the U.S., indicative of a booming IPO market. But now there are concerns that liquidity could dry up soon resulting in fewer takers for the newer shares.
This is why valuation has become a key indicator of whether a stock is hot or not. Norman Chan of Banyan Asset Management warns that IPO "valuations have been too aggressive in the past six months." He says the "market is sending the signal it doesn't want to swallow those valuations" and it wants "potential companies coming to the market to be more realistic."
In keeping with this sentiment, Samsonite slashed its initial share price range from HK$13.50-HK$17.50 to HK$14.50-HK$15.50. It then priced its shares at the bottom of the revised range. At HK$14.50 per share, there is hope yet of a successful debut, say market watchers.
Samsonite's IPO price is 13 times 2012 earnings, giving it an edge over rival brands. In Hong Kong, L'Occitane is trading at a 2012 PE ratio of 21. Chinese companies like shoe maker Belle trades at 22 times forward earnings, watch retailer Hengdeli at 18 times and menswear company Lilang at 16 times forward earnings. It could also lure investors away from Prada, which lists 8 days later at a forward PE ratio of 28.
Samsonite is also competitively priced against its foreign rivals, namely Coach and Burberry, which trade at 17 and 18 times forward earnings in New York and London respectively.
However, Samsonite doesn't seem all too cheap if you compare it to a little known brand called Powerland - a Chinese company that sells high-end handbags and suitcases. Listed in Frankfurt, it is trading at just 7.7 times projected earnings, which makes Samsonite look expensive and could impact the decision of cherry pickers.
Kevin Tam, a research analyst at Core-Pacific Yamaichi warns that investors have become risk averse recently and given the abundance of IPOs, "investors don't necessarily have to pick this stock."
Still, Massachusetts-based Samsonite has a strong presence in Asia, which contributes 40 percent to its earnings. It is also banking on further demand growth in China and India. It expects the Asia ex-Japan travel market to expand 8 percent per year till 2015, twice the forecast for Europe.