Ziwo Holdings ($0.325) - Rubbing its way to the top

This is my first stock call and ironically, I am going to call for an ipo.

Honestly, it is against my principles to go for ipos but this is a company that has impressed me and caught my eye with its easy to understand business.

I have to admit that I have my reservations on new stock offerings because they tend to price at very high valuations and unrealistic premiums to that NTA. Bearing all this in mind, I will go on to say why I like this company.

Ziwo Holdings Ltd : is engaged in the research and development, manufacture and sale of SBR and other foamed materials (comprising foamed SBR, foamed EVA and high foamed PE), 30D terylene filament yarn, and sandwich mesh fabric, which are used mainly as raw material in the production of lifestyle consumer products, furniture upholstery and automobile interior lining.

In simpler words...it makes synthetic rubber.

Having so many uses for synthetic rubber, it does not take a genius to figure out that this is a very stable business.

Many people are under the impression that this is a fibre related stock like fibrechem and sinotech fibre but this is something very different. The revenue mix shows that the company derives 62% of its revenue from SBR Foam (synthetic rubber). The margins are expanding and currently stands at 40%. The company has expanded their margins for all their products over the past 4 years.

(Remember that we are basing all this on numbers that have been provided in the prospectus so lets hope the management is not lying)

The company registered a diluted EPS of 4.6 cents for FY2008. At ipo price, it is trading at 5.11 times, current price of 32.5 cents it is only 7 times historical. If that is still not impressive enough, the company grew their 1st quarter profit by more than 1oo% YOY. Assuming that it can grow even close to this amount, the forward earnings could be only 4 times. So we can possibly see much higher prices for this stock. A lot still depends on the sentiment right?

Grew its client base from 41 in 2005 to 439 in 2009. Impressive growth. Management targets to grow their production capacity by 2 times within the 2 years.

I do not like to do long analysis. Basically, the business is easy to understand, good track record, very low valuations, strong cash flow and zero gearing. Lots of opportunity to grow.

So it gets my thumbs up. Of course all caveats remain. The ipo rule......lets hope it does not haunt me.

Best,

SVI