Thursday, 4 March 2010

First Heavy shares fall on trading debut despite lower offering price

China First Heavy Industries fell on its debut after raising US$1.67 billion in the mainland’s biggest initial public offering this year, as investors baulk at the high valuations pinned on a steady stream of new listings.

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Guanyu 道 said...

First Heavy shares fall on trading debut despite lower offering price

Reuters in Shanghai
10 February 2010

China First Heavy Industries fell on its debut after raising US$1.67 billion in the mainland’s biggest initial public offering this year, as investors baulk at the high valuations pinned on a steady stream of new listings.

The country’s largest heavy equipment maker was the third to post a rare first-day decline, even after it broke with standard mainland practice to set its offering price below the top of an indicative range.

Mainland investors have grown wary of new shares as the market weakens, depressed in part by increased listing approvals from authorities who see the growth in share supplies as a means of keeping the market cool and averting an asset price bubble.

“Investors just were not buying these valuations,” said Xu Yinhui, a senior analyst at Guotai Junan Securities. “Initial public offerings will keep coming despite several falling below their listing price, but the high price-earnings ratios may shift to relatively lower settings.”

China First Heavy, which supplies heavy equipment to steel mills and nuclear power plants, closed down 3.2 per cent at 5.52 yuan (HK$6.27), against an offer price of 5.70 yuan.

Analysts had expected the shares to make a relatively flat debut after pricing its offering just below the top of a five yuan to 5.80 yuan range.

It was the mainland’s first initial offering since the end of a nine-month listing in June last year that was not set at the top of the range.

In the past two weeks, China Erzhong Heavy Industries and China XD Electric both closed below their Shanghai offer levels, the first to do so in more than five years.

Analysts said companies were still pricing their listings too high, despite regulators pushing firms to set more reasonable prices after a series of weak flotations.

The benchmark Shanghai Composite Index is down more than 10 per cent this year, pressured by official credit tightening and the stream of new share issues. The index was up 0.47 per cent yesterday.

Mid-sized brokerage Huatai Securities will soon overtake First Heavy as the mainland’s biggest listing of the year, after saying it would raise as much as 17.26 billion yuan in a Shanghai offering.

First Heavy’s offer price valued its shares at 41 times 2008 earnings, in line with Erzhong Heavy, which has rebounded from its debut decline.

Several analysts believe First Heavy, as well as Huatai Securities, whose offer price range would value its shares at more than 32 times last year’s earnings, have set their valuations too high.

First Heavy’s pricing also values the stock at 32 times earnings last year, one analyst estimates.

The index trades at an average valuation of about 22 times earnings last year and some analysts reck about 30 times is the maximum to avoid putting off investors.

They add, however, that state-owned First Heavy’s fortunes should be boosted by Beijing’s investment plans in the nuclear power sector.

“The debut will be soft, but it may manage to end up slightly higher, given the quality of the shares is good,” said Wen Lijun, an analyst at Nanjing Securities.