Do stationery firms have 'write stuff' for IPOs?

Two private-sector stationery companies have announced plans for initial public offerings on the Shanghai Stock Exchange, a move that comes as many players in the industry seek to expand in a highly competitive market.

Shanghai M&G Stationery Inc will offer up to 100 million shares to raise 1.48 billion yuan ($237 million), according to its prospectus released in late April.

The Shanghai-based company said it will use the proceeds to expand its dealer and distribution channels, as well as on research and development, manufacturing operations and as a boost to working capital.

In 2013, M&G, which claims to be China's largest writing supply producer with about 60,000 outlets across the country, generated 2.4 billion yuan in revenue, up 24 percent over the previous year.

The company declined further comment, but it has said it will pursue more aggressive expansion this year if its IPO plan is approved.

Rival TrueColor Stationery Co Ltd, meanwhile, plans to issue up to 55 million shares to raise about 406 million yuan.

But analysts said it might not be a good time for stationery companies to list, because a price war is eroding profit margins.

TrueColor's revenue was only half as large as that of M&G in 2013. It said in its prospectus that net profit slid nearly 27 percent from 2011 to 2013, to 3.6 million yuan, amid fierce competition.

But Chen Du, chief analyst at Beijing Integration Capital Investment Co, said that despite the huge number of companies making school and office supplies, market concentration is low.

"Given the situation, stationery companies need to expand quickly to occupy a market niche so that they can grab more market share," he said.

TrueColor, with eight flagship stores, plans to build another 38 stores on its own and expects to double its net profit after the expansion.

"M&G is anticipating a tough encounter," Chen said. "And as more players are expanding their presence, competition is intensifying."

China is expected to overtake the United States as the largest writing supply market in 2018, with a market value of $4.2 billion, according to a report by Euromonitor International, a London-based consulting firm.

China has posted the strongest average growth rate of 14 percent in writing instruments over the past five years and will remain the fastest stationery market over the next five, the report said.

Gek Tan, who covers personal accessories and eyewear at the firm, said that China's stationery market has an upbeat outlook for the coming years, in spite of mounting challenges posed by the use of electronic devices such as smartphones and tablets.

Gek noted that the industry has a large customer base of university, secondary school and primary school students, as well as administrative officers. She also said that stationery makers should strengthen their distribution channels at hypermarkets, independent stores and bookshops.