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December 16, 2009

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Firms eye higher IPO proceeds

DRIVEN by higher valuations, the second batch of companies to list on China's Nasdaq-style board seek to raise 4.9 billion yuan (US$717 million) from their initial public offerings, more than triple the planned amount of 1.6 billion yuan.

The eight startups will begin to receive subscriptions from today with an average price/earnings ratio of 83.59, compared with the average of 56.7 for the first batch of 28 companies on ChiNext, a Nasdaq-style board which aims to offer a financing channel for innovative start-up firms. The startups, which include medical and information technology firms, will issue a total of 198 million shares in the IPOs.

"Subscription for new shares is a safe option for investors as the shares usually surge on their trading debut, but I suggest they sell off their holdings on the opening day to take profit because the PE ratio is irrational," said Lin Feng, an analyst at Aerospace Securities Co.

Another analyst said the higher valuation was not unexpected but believed that it could be cut if approval for new IPOs was speeded up.

"The higher IPO prices can be expected as the prices of new stocks listed on the main boards recently were also high," said Lv Lihua, an analyst at Century Securities. "If the securities regulator can speed up approval of new IPOs next year, the higher valuation can be reduced."

Qilu Securities Co said the new supplies will help curb speculation in the secondary market of the new board. "Although the opening price of new stocks may surge higher, the growth on the secondary market will slow as speculation eases with the new supplies," it said.

Jinlong Machinery & Electronic Co, a Zhejiang Province-based company focusing on researching, producing and selling mini motors, has the highest PE ratio at 126.67 out of the eight new companies. Its IPO price is set at 19 yuan per share.

"Jinlong's IPO price is too high, so we suggest investors sell off their holdings after it is listed," said Zhang Hongdao, an analyst at Huatai Securities Co.

The average PE ratio of the first batch of 28 companies listed on Chinext climbed to 113.69 by Monday.


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