China is finally feeling bullish about the stock markets once again. Just last September, Chinese regulatory authorities suspended all new IPOs following a 60% plunge in the stock market. Now the ten-month blackout is coming to an end, signaling a potentially major shift in investor sentiment. Initial public offerings are in the works for Shanghai, Hong Kong and New York.
Already, Chinese brokerage shares are soaring on expectations that once-frightened investors will be returning to the market in a buying mood. To be sure, the first wave of IPO money won’t be a flood. But shares on the Shanghai Stock Exchange are already up 58% this year, so the prospects look promising.
In effect, we believe the China Securities Regulatory Commission is testing the strength of a market turnaround already underway. Regulators apparently plan to allow smaller companies go public first in order to test the market’s appetite for share sales.
Sanjin, China’s biggest producer of herbal lozenges, aims to raise about $93 million. Zhejiang Wanma Cable Co. and Shenzhen Salubris Pharmaceuticals Co. are also likely to get final IPO approval soon. The companies each plan to raise less than $95 million. In total, thirty-two companies have been given approval to raise money by tapping equity markets without receiving a date for their listings.
Bigger IPOs are also planned for the Hong Kong Exchange. First-time public stock offerings in Hong Kong may net $18.7 billion. Total new IPO funds raised this year on mainland stock markets could raise another $20 billion.
Chinese IPOs are also making their debuts on New York stock markets in coming weeks. Two firms, Beijing-based water treatment supply distributor Duoyuan Global Water Inc. and the Shanghai-based chemical company, Chemspec International are set to become the first stand-alone Chinese companies to list on a U.S. exchange since last August.
The most recent Chinese IPO listing in the U.S., Chanyou.com (CYOU) is not really a stand-alone company. Changyou is the online game division of the Internet portal Sohu, and Sohu retains a controlling stake in the company. Changyou’s performance may bode well for the new listings, with CYOU prices up more than 90 percent since the firm’s IPO.
Duoyuan Global Water will list under the symbols DGW. The company is a China-based domestic water treatment equipment supplier. Its products deal with water filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis. Considering China’s pollution headaches, this is a company with long tern growth potential. With a listing price of approximately $15, the company will have a rather high P/E multiple but it is showing substantial growth, with revenues increasing 40 percent in 2008 compared to the year before. Net income is up 63 percent for the same period.
Chemspec International will list on the NYSE under the symbol CPC. The company is the largest manufacturer of fluorinated specialty chemicals in China with a share of approximately 25 percent of the Chinese market in 2008, Chemspec also manufactures specialty chemicals, which are used as building blocks in the manufacture of more advanced chemicals for end users in various industries including electronics, pharmaceuticals and agrochemicals.
Shares may be prices as high as $9. The company had impressive growth last year but hit a rough patch in the first quarter of 2009. Net income growth was up 34 percent in 2009 compared to the year before. For the first quarter, income was off -44% compared to the same quarter a year ago.
And, in a final development Skystar Bio-Pharmaceutical Company will be coming off the pink sheets and will gain a full Nasdaq listing. The company is still trading under the bulletin board symbol of SKBO.OB. Skystar makes and distributes veterinary healthcare and medical care products.
Stand by for more email trading alerts as we assess these new IPOs and other fast-moving China-based stocks.
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China Stock Digest