Joyas International

Caveat emptor. Pitfalls ahead?
06 March 2008



Joyas International is breaking certain laws in China and is at risk of incurring significant losses.

Joyas International designs and makes metal gift products that are used as corporate gifts by HSBC, Citigroup and Peninsula Hotel.

It makes fashion accessories like cuff links and timepieces, It also makes table top accessories such as pad holders and photo frames.

Joyas is also a supplier to brands such as Folli Follie, Wedgwood and Marks & Spencer, and has its own retail stores in Hong Kong and China which market its products under the brand name 'Argent'.

According to Mark Laudi’s blog entry on 25 February, Investor Central will be allocating demerit points based on a company's public tranche, as we have often noticed that issue managers reserve a only a tiny number of stocks to the public.

And because there's not even stocks to go around, the demand drives the stock price up, creating a false impression that there is a huge demand for it.

So here's a look at the invitation details.

Joyas is offering 28.8 million shares.

The shares are made up of 22.8 million new shares and 6 million vendor shares.

One million of these will be offered to the public and the remaining 27.8 million will be placed to other investors. 
Each share will go for S$0.29.

Investor Central slaps a total of three demerit points to Joyas International as it’s only offering 3.47% of its total invitation to the public.

Its issue manager is Westcomb Financial Group.

Joyas plans to raise net proceeds of about S$4.6 mln from the sale of new shares.

About S$1 mln will be used to buy more machinery and equipment.

Another S$1 mln will be for advertising and promotional activities.

And another S$1 mln to improve its design and development capabilities.

The remaining S$1.58 mln will be used as working capital.

The public offer will close on March 11.
After listing on Thursday March 13, the stock will be expected to trade at a price to net asset value ratio of 2 times and a price earnings ratio of 5.7 times.
The company will also have a market capitalization of S$31.2 mln.

Joyas International does not have a fixed dividend policy but its subsidiaries have been paid a dividend of HK$19.9 mln for HY 2007, HK$16.6 mln in FY 2006, HK$19 mln in FY 2005 and HK$13 mln in FY 2004.

The company still has a couple of loose strings it needs to tie up.

Joyas is currently at risk of paying a penalty and demolition costs of up to HK$1 mln and may even lose its warehouse which has a net book value of HK$900,000.

It is breaching the Chinese city’s planning law by constructing a warehouse in Shenzhen before getting the required approval.

However, it expects to get the approval from its real estate ownership certificate due in July 2008, if not, it will incur additional costs of about RMB 10,000 to relocate its business, which will disrupt its operations.

Joyas is also unsure if it will be able to enter into a new lease agreement for one of its staff dormitories.

It is at risk of spending RMB 10,000 to relocate its staff and seek alternative lodging if it is unable to renew its lease.

Again, if that happens operations will be disrupted.

The company is highly dependent on a constant flow of sales orders, as it does not have any long-term contracts with its customers. Orders are only placed one to two months in advance. This means no long-term revenue flowing in.

Joyas International has four founders, and three of them share one thing in common, they have previously worked for Charlene Manufacturing.

Fifty-nine year old, Lau Chor Beng is the co-founder and managing director of Joyas.

He is also the founder of Charlene Manufacturing which he voluntary wound up in 2003.

Lau is responsible for the overall management and strategic planning of the business.

Lau was appointed Honorary Chairman in the Hong Kong Die-Casting Association and the Metal Casting Technology Sub-committee Chairman in 2003.

His siblings, Lau Chor Wing, Lau Chor Ming and Lau Chor San are also involved in the business.

His son, Lau Kia Yiu is an Executive Officer in the business, and is also the nephew of co-founder and Executive Director Danny, Cheung Wai Hung.

Fifty year-old Cheung oversees the overall operations and sales of Joyas.

He is the brother-in-law of Managing Director Lau Chor Beng and was previously employed by Charlene Manufacturing.

Ex-employee of Charlene Manufacturing, 48 year old Chan Shui Ki is also a co-founder of Joyas and an Executive Director.

He is in charge of the process development team and production facilities in China.

They will all be paid up to S$250,000 per year.

Last but not least is co-founder Chan Yee Hong, according to the prospectus, Chan is an ex-shareholder of the business.

Joyas did not provide any other information on Chan.

For HY 2007, Joyas revenue jumped 38.7% to HK$85.7 mln thanks to an increase in orders from new and existing customers.

Excluding gains from the disposal of certain land and buildings, its profit before tax was up by 87.1% to HK$11.6 mln.

The business generated about HK$27.1 mln in cash from operations.

Please seek professional advice before making any investment decisions.

By Yeo Sue En Investor Central

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