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October 15, 2009

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GEM's latest hopefuls set high PE ratio

THE third batch of nine companies seeking to list on China's upcoming Nasdaq-style board set their share prices at nearly 57.5 times their earnings last year, reflecting strong sentiment from investors for the start-up firms.

The average price-to-earnings ratio was 56 times for the first two batches of firms to be listed on the Growth-Enterprise Market and 36 times for initial public offerings on the main boards so far this year.

"The high PE ratio may lead to a price plunge on the stocks' trading debut when investors sell off their holdings to take profit, which will harm the development of the new board," said Hu Xiaohui, an analyst at Greatwall Securities Co.

Huayi Brother Media Corp, China's largest privately owned film company, will raise 1.2 billion yuan (US$176 million), the most of any other company in the third batch and double the 620 million yuan the firm had estimated last month.

The company is held by more than 50 domestic movie stars and filmmakers such as Feng Xiaogang, Huang Xiaoming and Luo Haiqiong.

Shares of Tianjin Chase Sun Pharmaceutical Co were priced at 60 yuan each, the highest among all companies that have been approved to list on the new board.

The GEM, expected to be launched this month, offers a channel for promising startups to raise money. Small firms account for 99 percent of all companies in China and provide 75 percent of jobs, but banks have been reluctant to lend them money because they don't have solid track records.

The first batch of 10 firms seeking to list on the GEM drew 784 billion yuan in subscriptions last month. Subscriptions opened on Tuesday for shares of the second group of nine firms, and subscriptions start today for the third batch.


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