Successful dot-com IPOs are fast becoming an endangered species. Panda-Recruit Ltd, distributor of job ads to MTR passengers, starts trading on GEM tomorrow. The company is chaired by GEM Listing Chairman K S Lo, so you might think it was a sure bet. We don't think so. We also reveal the hidden owners of one of the shareholders.

Save the Panda
19 July 2000

After being stuck in the station since the Spring waiting for the dot-com market to recover, Panda-Recruit is braving the battered GEM market. Investors must be hoping that its Chairman, K S Lo, who is also Chairman of the GEM listing committee, has priced the issue to go.

We take a look at the business model and reveal something you didn't know about the Company's shareholders.


The core business of Panda-Recruit is a company called Hong Kong Transit Publishing Co. Ltd (HKTP), incorporated on 23-Apr-91. It has been headed from the start by Robert Chow Yung (Mr Chow), former Editor-in-Chief of local English newspaper the Hong Kong Standard (now Hongkong Imail), which is owned by Sing Tao Holdings Ltd.

HKTP publishes a free recruitment magazine called "Recruit" which was launched in Jul-92 as a Friday publication, becoming twice-weekly in Jan-94. It is targeted at mass-market office workers. Between February and April each year, there is a seasonal burst of job-hopping after employees collect their "13th month" lunar new year bonus, which increases the advertising volume, and so since 1993 the group has published "Recruit Extra" on Wednesdays during that busy period. 

HKTP has a 10-year exclusive licence with Mass Transit Railway Corporation to distribute Recruit at MTR stations in return for an annual licence fee equal to 30% of HKTP's net profit for each financial year. The licence expires in less than 2 years, on 2-Jul-02. All income of the Panda-Recruit group received from recruitment advertisements in Hong Kong (presumably including job-ads on the web site) is treated as income of HKTP for the purpose of the MTRC's licence fee.

One of the biggest risk factors in that model is that in 2 years time, a newly floated MTRC may decide to renegotiate its contract or simply open the stations to other competing publications. Recruit depends heavily on reaching passengers who make 2.2m journeys during an average weekday.


In Mar-92, HKTP was capitalised by an issue of 100,000 shares to its 4 founders, Century Faith Investments Ltd (Century Faith), Mr Chow, Pearl & Dean Ltd and Martin Clinch & Associates.

Pearl & Dean Ltd became JC Decaux Pearl & Dean Ltd (JCDP&D) after it was taken over recently by French outdoor media group Decaux SA. That's chaired by Jean-Claude Decaux, who claims to have created the first advertising bus shelter, free of charge to local authorities, over 30 years ago (presumably in France). In Hong Kong, JCD&D specialises in display advertising in MTR stations and at the HK airport.

Martin Clinch & Associates became Publi Promotion Network Asia Holdings Ltd, which the savvy  PR guys presumably realised was too long, so it is known as Publicitas Asia, and is a division of Swiss-listed PubliGroupe Ltd. On a global basis, Publicitas handles some of the advertising sales for over 2,000 newspapers and magazines in 21 countries.

By Nov-94, a further 5,000 shares in HKTP had been issued and each share was exchanged for a share in a new holding company, Recruit Holdings Ltd (RHL). The ownership of this remained unchanged until 25-May-00. Up to that point, the owners were:

Name Shares in RHL Stake (%)
Mr Chow 12,375 11.79
Century Faith 35,625 33.93
JCDP&D 28,500 27.14
Publicitas Asia 28,500 27.14
Total 105,000 100.00

The hidden owners

Century Faith Investment Ltd is 66.67% owned by Great Eagle Holdings Ltd, which is the Hong Kong property group founded in 1963 by its Chairman Lo Ying Shek. One of his sons is Lo Ka Shui, who is Deputy Chairman and Managing Director of Great Eagle. He is also the Chairman of the GEM Listing Committee.

In relation to Century Faith, the Panda-Recruit prospectus states:

"the remaining 33.33% [is] held by independent third parties".

The prospectus also states that Lo Ka Shui represents Century Faith on the board of Panda-Recruit, and:

"Apart from the representative nominated, the Directors [of Panda-Recruit] and their respective associates as defined in the GEM listing rules are independent from Century Faith". can reveal that the shareholders of Century Faith are in fact as follows, as of the latest annual return filed in Oct-98:

Name Shares Stake (%)
The Great Eagle Company Ltd 6 66.67%
Salespost Ltd 2 22.22%
Chan Family Investment Corp Ltd 1 11.11%
Total 9 100.00%

Salespost Ltd has a registered address at the 34th Floor of Shui On Centre in Wanchai. And guess what - that is the head office of the Shui On Group, which is headed and was founded by Vincent Lo Hong Sui, who is another son of Lo Ying Shek and brother of Lo Ka Shui, and is a Director of both Panda Planet and Century Faith. A corporate communications spokesperson for Shui On Group confirmed to that Salespost is part of the private Shui On group.

So it would seem that the prospectus is wrong and that another director of Panda-Recruit does in fact have an interest in Century Faith. ING Barings, the listing sponsor, did not return calls seeking comment.

You might be wondering about the third shareholder. That is a private Cayman Islands company, so we are unable to check its owners, but a clue is that the only director of Century Faith who is not a Lo is Mr Chan Wing Kee. It may be a coincidence, but a person of that name is also the Managing Director of HK-listed Yangtzekiang Garment Mfg Co Ltd, which was founded by his father, Chan Sui Kau. The retail arm of the group is YGM Trading, and the Chan family controls both.

Premier Printing Group

In addition to Recruit, in Jan-94 or Oct-94 (depending on which page of the prospectus you are on) the founders of HKTP established Premier Printing Group Ltd (PPG) to undertake the printing projects of Recruit and other newspapers in Hong Kong.

This was 20% owned by Panda-Recruit, 15% by Mr Chow and 25% by Century Faith. The rest was held by two companies which the prospectus (again) says are "independent third parties"; 25% by Highview Assets Ltd and 15% by Polygold Commerce & Investment Ltd. We don't know who owns them.

On 31-Mar-00 Sing Tao Holdings Ltd (Mr Chow's former employer) injected certain printing assets worth HK$80m into PPG in exchange for 50% of the equity, diluting the founders proportionately. So Panda-Recruit now owns 10% of PPG. has extracted the performance of PPG from the accountants' report of Panda-Recruit (after eliminating the effect of Ltd) and we find that it is in fact more profitable than Recruit Holdings itself:

 By comparison, the track record of Panda-Recruit Ltd is as follows:

The overlapping shareholder bases of PPG and RHL suggest to us that PPG should have been included in the float vehicle, firstly because PPG is profitable and secondly because its shareholders have a clear interest in the printing business awarded by Panda-Recruit. In fact, this trading escapes being treated as a "connected transaction" because none of the substantial shareholders of Recruit owns more than 35% of PPG. Ltd

Pandaplanet was apparently conceived in a meeting on 17-Sep-99, in which RHL and 3 of its 4 founders agreed to fund the project (JCDP&D did not take part). The web site is the online companion to recruit, replacing the original Recruit Online which was launched in Nov-96 and will be taken down on 31-Jul-00. We're not sure why they felt the need to start again, except to have a different company with a new brand that could be floated. The new site was launched in Feb-00, at the height of dot-com mania.

The new Pandaplanet plans to conquer greater China. Frankly we don't rate its chances highly. This is because each city-sized market (like Hong Kong) is very self-contained, with only a small amount of hires from outside the city in the case of the mass-market jobs that Recruit targets. So the online companions of local newspapers are likely to have the first shot at the competitive field, followed by any start-up that can get a relatively small amount of capital together. Take Hong Kong for example - we have more than a dozen web sites competing in the jobs sector, as shown in our Webb-Guide.

In the Sep-99 meeting, RHL's stake in Pandaplanet was set at 37%. Relative to the other 2 shareholders (Century Faith and Publicitas Asia), Mr Chow's interest was set higher than their interests in RHL, and their participation was reduced accordingly. As a result, the stakes in were as follows:

Name Stake (%)
RHL 37.0000
Mr Chow 16.4779
Publicitas Asia 20.6765
Century Faith 25.8546

The participants advanced loans to Pandaplanet in proportion to their interests, and then converted them into shares in two batches, on 19-Jan-00 (HK$2m) and 24-May-00 (HK$50m) for a total investment of HK$52m.

Pre-IPO restructuring

On 25-May-00, in preparation for the IPO, RHL acquired the outstanding 63% of Pandaplanet in Exchange for 108,536 new shares in RHL (50.83% of the enlarged company).

We don't know what valuations on RHL and Pandaplanet were used for the merger, but the implication is that 100% of Pandaplanet was worth 80.7% of the enlarged company while the old RHL (excluding Pandaplanet) was worth only 19.3%. If anyone lost out there, it was JCDP&D, who had not participated in Pandaplanet.

Finally, all the shares in RHL were swapped into a BVI company that was then swapped for shares in Panda-Recruit, and here's the result:

Name Shares Pre-IPO
Mr Chow 168,409,000 18.71
Century Faith 264,912,000 29.43
JCDP&D 331,140,000 36.79
Publicitas Asia 117,745,000 13.08
Pre-IPO placing 17,794,000 1.98
Total 900,000,000 100.00

That pre-IPO placing, worth $1.3m, was done at just $0.07306 per share and the placees were 128 employees and 5 directors of Panda-Recruit, as well as 13 employees of PPG. The price represents a 74% discount to the final IPO price of $0.28.

The small size of the employee allocation makes us think that either they will want a lot of share options in the future or they will be using Recruit for its intended purpose.

A poor reception

The IPO offered 225m new shares (20% of the enlarged company) at $0.28 per share (after an initial range of $0.26-$0.30). Of this, 25% was by public offer and 75% by placing.

On the face of it, the public offer of 56.25m shares was 1.55 times subscribed, but if you look at the breakdown you find that one person applied for 40m shares, and without that the offer would have been 0.84 times subscribed.

In fact, the top 10 applicants (out of 414) applied for 64m shares, and the rest of the world applied for only 0.41 times the Public Offer. In the Placing, 67.7% of the shares went to the 10 largest placees.

Our view

The IPO price of $0.28 values the company (before the new money) at HK$252m.The old Recruit business (excluding PandaPlanet but including 20% of PPG) made $8.31m in 1999. That's a p/e of 30x for a business which is ex-growth in its Hong Kong market. And in 2 years time its licence agreement with the MTR expires with no certainty that it will be renewed. Meanwhile, Pandaplanet will continue to burn money and counteract the profit in the rest of the business.

Therefore the investor has to hope that the company will achieve expansion in Greater China, something that it has barely started, in an a fiercely competitive field, and in the case of the PRC, with a grey regulatory framework.

Looking at the HK business, it seems unreasonable to think that job advertisers will spend more on job-ads in the future than they have in the past. It is reasonable to assume that they will spend some of their budget on the internet, and if Recruit had not gone online then it would have been outdated in a few years. In other words, the web site is a necessary step to maintain the business of Recruit, but as yet there is no evidence that it can actually add to profitability or market share.

©, 2000

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