Hong Kong’s popularity as a luxury-goods market, boosted by well-heeled tourists from neighboring mainland China, is being matched by demand in the city for shares in luxury brand companies, exemplified by a near doubling of the value of Milan Station on Monday.

Shares in Milan Station, which sells second-hand and new luxury handbags, surged as high as 77% on their debut, from the initial public offering (IPO) price of HK$1.67 for the city’s hottest-ever share sale. The IPO was oversubscribed by more than 2,100 times, according to reports.

A stream of luxury-goods makers are hoping to match that success. British shoe brand Jimmy Choo plans to raise 650 million pounds (US$1 billion) in a Hong Kong IPO, the Financial Times reported last month, and Italian fashion label Prada intends on June 24 to have yet another go at raising funds in the city after earlier dropping such plans.

Coach, the biggest US maker of luxury handbags, will seek a secondary listing in Hong Kong by the end of the year, chairman and chief executive Lew Frankfort said on May 10, aiming to “raise awareness of the Coach brand among investors and consumers in the China market as well as throughout Asia”.

From Europe, Italian leather-goods maker Piquadro wants to raise funds in Hong Kong, and Greek jewelry and luxury goods retailer Folli Follie is also in talks with investment banks with the same goal.

Mainland conglomerate Fosun International, owned by billionaire Guo Guangchan, last month bought 9.5% of Folli Follie for about HK$1 billion (US$128 million). Folli Follie entered the Chinese market in 2002 and operates more than 100 stores there under the brands Folli Follie and Links of London. It said earlier that it aimed to open more 250 outlets in China in the next three years.

Prada chief executive officer Patrizio Bertelli, announcing his company’s listing intentions in March, said the Hong Kong stock exchange was closer to the retailer’s fastest-growing region and raising funds there could help it seize the best opportunities offered by the international capital markets.

Prada expects global sales of about 2 billion euros (US$2.8 billion) for last year, with about 40% coming from Asia. It has previously considered going public a few times, with the world economic crisis of 2007-08 one factor that has derailed its plans.

Victor Fung, chairman of Li & Fung, which helps companies around the world to source goods in the mainland and elsewhere, told its annual general meeting on May 18 that the spate of listings would boost the territory’s economy and help Li & Fung along the way. The trend reflects the importance of the China market and it will help his company increase its role in purchasing businesses in Asia and Europe, he said.

Ma Ruiguang, of Flyhorses Consulting, a chain-store consultancy, attributed the flurry of IPOs by global brand names to their shifting focus to emerging markets during the next two to three years. China is becoming a testing ground for luxury-goods makers, and retailers of these goods are popular among investors in Hong Kong, he said.

Benefiting from a fast economic recovery, low interest rates and appreciation of the mainland currency, Hong Kong retail sales have risen, and retailers “have become the favorite among investors”, he said.

Retail sales in Hong Kong jumped 21% by value and 16.3% by volume in the first three months of this year compared a year earlier – thanks largely to the 6.5 million mainlanders who visited the city from the mainland during the period, up 17.5% from a year earlier.

Demand for the Milan Station’s stock on Monday was in sharp contrast to the recent lackluster trading on the Hong Kong stock exchange, which in the May 1 to May 15 period was down about 13.4% to US$8.82 billion from April’s daily average, according to Bloomberg data. The Hong Kong exchange has been the world’s biggest IPO market for the past two years.

The public portion of Milan Station shares in the HK$270 million IPO was 2,180 times oversubscribed, breaking the previous record of 1,702 times shares on offer set by Tianjin Port Development in 2006. The share sale froze up HK$58.8 billion in margin financing orders.

Not all luxury goods brands can expect to replicate the IPO success of Milan Station, which is based in Hong Kong. At HK$270 million, the amount being raised was small compared with most share sales on the local stock market, effectively magnifying demand for the limited number of shares available, according to Andrew Wong, chief executive of Hong Kong-based brokerage Lyncean Holdings.

Even so, “with its efficient business operation and good reputation, Milan has been very popular in the luxury sector,” he said.

The company, which operates under the names Milan Station and France Station, attracts mainland consumers keen to buy new and second-hand handbags made from designers such as Louis Vuitton, Hermes, Chanel and Gucci in its 14 outlets in Hong Kong, Macau and the mainland. The second-hand bags apparently come from first-time buyers of up-market bags bored with their purchases or unpleased by their presents.

The designer handbag market in Hong Kong was estimated at HK$9.6 billion in 2009, with 45% of sales made to mainland customers, according to a pre-listing prospectus filed with the Hong Kong stock exchange by Milan Station.

The company’s net profit grew 38.5% to HK$54.3 million last year from 2009 while revenue totaled HK$730.3 million, up 19.5%. It had a gross profit margin of 30% in the mainland and 20% in Hong Kong last year, with the chain’s most profitable items being limited edition Hermes handbags.

The original prices of such limited edition bags range between HK$50,000 and HK$60,000, but the second-hand bag retailers buy the bags at HK$80,000 to HK$90,000 and sell at HK$110,000.

The company plans to set up 24 new outlets in Beijing, Shanghai, Guangzhou, and other leading mainland cities in the next two years.

Kenny Tang, securities business general manager at AMTD Financial Planning, who had forecast Milan Station to rise about 30% on its debut, said upcoming IPOs by global brand names would be warmly received due to the surging retail sales and continuing economic recovery.

L’Occitane International of France went public in Hong Kong last May, when its IPO raised US$707 million and was 159 times oversubscribed. The company’s shares are now trading at about 34% higher than the HK$15.08 initial price.

Olivia Chung is a senior Asia Times Online reporter.

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