Duoyan Global Water (DWG) Beijing, China Priced @ $17 June 24, 2009, above range, raised $88mm
Pluses:
. Strong company in a sector that has obvious growth . Use of proceeds to expand capacity
Negatives . Annualized March run rate down 19% from results for the year ended December 31, 2009 . Revenue down partially based on price reductions to keep market share
Duoyuan Global Water	DGW. 7, C+		RMB=Chinese currency
Water treatment equip	RMB	RMB	RMB	RMB		Post-IPO ADR equiv: 20.5mm
Beijing, China	2006	2007	2008	MarchQtr 09	March $	IPO Mkt
Rev ($mm)	424	593	593	120	$18	Cap (mm)
Gross profit %	27%	45%	45%	45%	45%	$287
Operating income %	15%	16%	30%	33%	33%	@$14
Net after-tax income	53	82	134	29	$4.2
Net income %	13%	14%	23%	24%	24%
VALUATION RATIOS	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Duoyuan Global Water	$287	4.0	17.1	3.7	2.2	24%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1	7
American Depositary Shares Evidenced by American Depositary Receipts, each ADS represents two common shares
Business
. A leading China-based domestic water treatment equipment supplier. . Product offerings focus on addressing the key steps in the water treatment process, such as filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis.
Three product categories
• Circulating Water Treatment Equipment. Currently produces over 35 products, including electronic water conditioners, fully automatic filters, circulating water central processors, cyclone filters and water softeners, used in the process of treating water and removing buildup in circulating water systems. • Water Purification Equipment. Currently produces over 30 products, many of which use ultraviolet, ozone, membrane-based and electrodeionization, or EDI, technologies, in the process of treating and purifying water for various applications and end-user customers, including residential communities and commercial businesses. • Wastewater Treatment Equipment. Currently produces over 15 products, including grit separators, microporous aerators and belt-type thickener-filter press mono-block machines, used in the process of treating wastewater, such as municipal sewage and industrial and agricultural wastewater.
Distribution
. Over 80 distributors throughout China in 28 provinces, including most of China’s key economic regions . DGW believes it nationwide distribution network is one of the largest among water treatment equipment suppliers in China. . As one of the first privately owned companies in China to supply water treatment products and through joint efforts with our distributors, DGW has developed a broad base of end-user customers throughout China, consisting primarily of wastewater treatment plants, water works facilities, manufacturing plants, commercial businesses, residential communities and individual customers.
Equipment prices fluctuate
. In 2006, DGW reduced the average selling price of fully automatic filters due to increased competition, which resulted in a decrease in revenue from this product line in that year despite increased unit sales . Alternatively, DGW increased its average selling prices in certain circumstances, including new or enhanced products into the market are introduced, or to offset the rising costs of raw materials and components. . During the first half of 2008, DGW raised the prices of all products two separate times by 4.2% to 18.5% to offset the rising costs of raw materials and components. . As a result of the recent challenging global economic conditions and competitive pressures, however, DGW reduced selling prices in the fourth quarter of 2008 by 3.2% to 4.4% to maintain or increase market presence.
Use of $63mm in IPO proceeds
• to improve and upgrade existing manufacturing facilities and production lines; • to build new manufacturing facilities and production lines to produce new water treatment products; • to build a research and development laboratory; • to fund potential acquisitions of complementary businesses as such opportunities may arise from time to time; and • for general corporate purposes.