OCT (Asia) recently entered into a placing and subscription agreement pursuant to which the company has agreed to place 57 million shares at HK$2.80 each.

The shares represent 19.67 percent of the company's issued share capital and approximately 16.44 percent of its enlarged issued share capital.

After the placement, its share price rose over 30 percent hitting HK$4 last week. A number of influential fund managers and investment banks bought shares through the placement.

So why are professional investors so optimistic about a company whose market capitalization is only HK$1.3 billion?

Looking at the directors and company structure of OCT (Asia), it is not difficult to realize how close it is with OCT (A-share) and the Konka Group, an electronic appliances maker.

Hou Songrong, chairman of OCT (Asia), was previously president of Konka.

Recently OCT launched a group listing in Shenzhen after issuing 486 million shares for 15.16 yuan (HK$17.21) a share to its parent, OCT Enterprises Co, in exchange for equity in 12 firms belonging to the parent.

At present, the Shenzhen-listed firm has around 31 billion yuan in total assets, 11 billion yuan in net assets and 3.1 billion yuan worth of total share capital.

The enterprise predicted that its net profit for the fourth quarter will be about 800 million yuan and net profit for this year will be about 1.39 billion yuan.

In the first three quarters, the firm's operating revenue surged 46.6 percent year-on-year, reaching 2.48 billion yuan, and its earnings per share were 0.22 yuan.

Investors may be keen to know how OCT (Asia) would benefit from its parent company's restructuring. In December 2008, the group completed the acquisition of a 51 percent equity interest in OCT Investments together with the 49 percent equity interest acquired in 2007.

The company now indirectly holds a 25 percent equity interest in Chengdu Tianfu OCT Industry Development, by virtue of its 100 percent interest in OCT Investments. Chengdu OCT is a large- scale integrated tourism and real estate development project comprising three major segments featuring a theme park, a cultural center and flats.

It seems to investors that OCT (Asia) has quietly became a property developer. This project in Chengdu seem to have applied the successful business model of Shenzhen OCT East Resort while at the same time boosting property value.

OCT East resort, a 3.5 billion yuan investment supported by OCT group, is located at Dameisha in Shenzhen.

Occupying about nine square kilometers, OCT East offers visitors an opportunity to escape from the bustle of city life and return to nature. Phase I of the resort opened in July 2007, offering a vast array of attractions to the public. Tea Stream Valley, a combination of Western and Eastern cultures, has been constructed based on many key elements such as Buddhism, tea, and bamboo.

Wind Valley features Olympic and golf sports, the Interlaken OCT Hotel, Interlaken Spa, and the Tea Show. OCT will also build an international standard shopping mall next to the complex in Chengdu. In a second-tier city like Chengdu, the property market has not been affected by the economic and policy factors. The company sold 800 apartments in only two weeks. The average selling price was 6,200 yuan per square meter.

Compare that with the average selling price of 4,500 yuan per sq m of apartments of similar quality in Chengdu. It is expected that the sales of this property can eventually generate over 1.2 billion yuan with profit of around 300 million yuan. This means that OCT (Asia) which owns 25 percent of this project can get over 75 million yuan.

Apart from this project, it is not difficult to guess that since OCT (A-share) has consolidated and completed the listing process, OCT (Asia) will be ready to benefit from asset injection in the future.

We might expect OCT (Asia) to ultimately become the flagship of OCT's property business.

Investors have come across asset injection stories involving Poly (Hong Kong) (0119) and also Minmetals Land (0230), so there are expectations of OCT (Asia) becoming one of the market's stars.

* Timothy Kwai is an investment strategist at Quam Securities

E-mail: timothy.tkkwai@quamgroup.com