STOCKS

Tong Ren Tang shines light on small-caps

PUBLISHED : Saturday, 18 May, 2013, 12:00am
UPDATED : Saturday, 18 May, 2013, 3:40am

The prospect of making quick money may lure investors back to Hong Kong's small-cap listings on the Growth Enterprise Market, after shares of Beijing Tong Ren Tang Chinese Medicine more than doubled in intraday trade on their debut last week.

The Chinese drug distributor and manufacturer, a spin-off of Tong Ren Tang Technologies, raised just HK$570 million by selling 200 million new shares, half of which were subscribed by 11 shareholders from Tong Ren Tang Technologies. The rest went to institutional investors.

No retail investors were given a chance to participate in the small-cap offering, after the demand for the new shares was easily oversubscribed due to the small number on offer, and the narrowly held structure of the listing probably explained the huge surge in the share price, said Alma Yang, a based fund manager at Shenyin Wanguo Asset Management.

"The small investor pool meant liquidity in the shares was exceptionally tight. This might have led to a surge in Tong Ren Tang's share price that may have seen the stock deviate from its fundamental value," she said.

Yang said some speculators might take advantage of the recent positive sentiment about the Chinese medicine industry, which was often viewed as a counter-cyclical sector able to weather tough economic conditions.

Separately, another local fund manger said: "The sharp upward trend of Tong Ren Tang reminded me of the Tom.com offering, where the internet portal start-up rose more by 300 per cent in the first week."

Small-cap stocks can easily swing wildly in value because they are less transparent and trading liquidity is thin, which means they have little appeal among fund mangers who prefer to invest in large and liquid blue chips.

The small investor pool meant liquidity in the shares was exceptionally tight. This might have led to a surge in Tong Ren Tang's share price that may have seen the stock deviate from its fundamental value

Tong Ren Tang shares, which were offered at HK$3.04, fell 9.31 per cent on Thursday to close at HK$9.94, after soaring to an intraday high of HK$11.80 on Wednesday last week. There was no trading on the Hong Kong stock market yesterday.

Tong Ren Tang's opening performance ranked the third best on the Growth Enterprise Market, an alternative fundraising platform focused on start-ups, after Tom.com and Hongkong.com at the height of the internet bubble in 2000.

According to data provider Dealogic, Tom.com (renamed Tom Group since) and Hongkong.com rose 335 per cent and 259 per cent, respectively, on their debuts.