Subscription to the initial public offering (IPO) of Little Sheep, which will close its retail portion today, is expected to outweigh other IPOs this month as local investors embrace the well-known mainland restaurant chain.

A total of HK$1.008 billion margin financing has been recorded by five local brokerages, including Philips Securities, Prudential Brokerage, Sun Hung Kai Financial, Taifook Securities and CASH Financial Service Group.

The IPO market in Hong Kong remains lukewarm in recent days as investors are concerned about the unclear market outlook. Bloomberg

Investors' favors for Little Sheep, of which margin financing was closed yesterday, are not diminished by the disappointing debut of sportswear company Xtep and the market plunge on Tuesday.

As investors are being selective, the overwhelming responses to Little Sheep and digital music provider A8 Digital Music have outperformed the modest subscription to Chongqing Machinery & Electric Co and the lukewarm response to Wah Kwong Maritime.

"Little Sheep's overwhelming response is expected as investors embrace famous brands they know," said Dick Lee, a corporate finance officer at Philips Securities.

"Investors with limited money have subscribed to Little Sheep and A8 Digital Music instead of other IPOs," Lee said, adding that Chongqing Machinery is not bad fundamentally especially with the demand from reconstruction work following the earthquake .

Meanwhile, Shandong Chenming Paper's retail subscription which opened yesterday was not as good as expected. A total of HK$21 million of margin financing was recorded by three local brokerages.

Chenming, mainland's largest paper manufacturer by sales, is the first company to float A, B and H shares together. It aims at raising HK$4.2 billion in the Hong Kong IPO.

Lee believes Chenming's worse-than-expected subscription response is due to the price range and less well-known brand for the local investors.

"Qunxing Paper, Nine Dragons Paper and Lee and Man Paper are all trading at a price-to-earnings ratio multiple of 9 times to 11 times," said Lee. "There is almost no discount if you compare Chenming with its peers, although its H shares are a big discount to A shares."

He believes that Chenming's retail subscription response in the next few days will depend on the overall market.

However, sources said Chenming's international tranche has already more than 5 times oversubscribed. The institutional book will be closed on Friday.

A director at Chenming's sponsor said responses of institutional investors are very positive. Chenming is in talks with two to three insurance companies and one international mutual fund in relation to the company's H shares subscriptions.

Meanwhile, Henan-based property developer Central China and sportswear retailer Pou Sheng, a spin-off of Yue Yuen Industrial, set the price respectively at HK$2.75, the lower-end of the indicative range and HK$3.05 apiece, close to the low end of the range.

The two companies are expected to announce their offering prices and subscription amount today and start trading on Friday.

(HK Edition 06/05/2008 page3)