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IPO duo suspended after rush

THE first two companies to go public on the Chinese mainland since last September rocketed on their trading debuts yesterday, triggering brief suspensions by the bourse.

Guilin Sanjin Pharmaceutical Co, China's largest herbal-lozenge maker, kicked off at 32.50 yuan (US$4.76) from its initial public offering price of 19.80 yuan. It rose 81.87 percent to close at 36.01 yuan on the Shenzhen Stock Exchange.

Zhejiang Wanma Cable Co opened at 22.50 yuan from the IPO price of 11.50 yuan, and jumped 125.48 percent to 25.93 yuan.

The rules stipulate that a company's shares will be suspended for 30 minutes on debut day if the price rises or falls by more than 20 percent after opening. Another 30-minute suspension will be enforced when a share price fluctuates by more than 50 percent in either direction.

The rules are to curb speculation and protect investors. Chinese buyers tend to favor IPOs as prices almost always surge on the first day of trading.

"As one of the two companies that launched IPOs after the 10-month suspension, Wanma must have been delighted with the response but the increase was higher than our expectations," said Shi Haisheng, an analyst at Zheshang Securities.

"A reasonable price-to-earnings ratio for Wanma should be between 23 and 28, but the ratio has exceeded 50 now, and we expect its share price to fluctuate sharply in the short term.

"I don't think the securities regulator's efforts in preventing excessive first-day price swings were effective."

The China Securities Regulatory Commission last month introduced a new IPO pricing system, under which an investor can apply to buy only up to 0.1 percent of all the shares available in an IPO.

It is part of commission efforts to curb speculation and narrow the difference between the IPO price and the trading price at a stock's debut after firms that went public last year gained an average 152 percent on debut.

"Sanjin's PE ratio reached 50 on debut, compared to the average PE ratio in the medicine industry of 26. We expect this stock to experience a slump soon," said Zhang Xiang, an analyst at Guodu Securities Co.


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