China Merchants Securities Co, which raised 11.1 billion yuan (HK$12.62 billion) in an initial public offering of shares in Shanghai, ended its first day of trade at 33.61 yuan, up a weaker than expected 8.42 per cent from its IPO price.
This is the worst first-day performance by a newly listed stock in Shanghai since a 10-month ban on IPOs was lifted in June.
The stock opened at 35.01 yuan on its first day of trade, up 13 per cent from its IPO price of 31 yuan, in contrast with hefty first-day gains of 40 per cent or more typical for mainland IPOs in recent months.
“Chinese investors are becoming more rational and the days when one could earn quick money on IPO debuts are gone,” said Xie Yan, analyst at Haitong Securities Co.
Several analysts had warned that Merchants Securities’ IPO, which valued the company at 56 times its last year earnings, was too expensive under current market conditions, leaving the shares little room to rise on the secondary market.
Xie said that bigger rival Citic Securities Co, which trades at a historic price/earnings ratio of 26.07, was a more attractive investment, and estimated fair value for Merchants Securities’ shares over the next 12 months at 24.48 yuan, or 21 per cent below the IPO price.
Mainland this year revamped the way IPO shares are priced, giving more power to market forces in a bid to move closer to international practices. Previously, regulators capped the valuation of IPO shares around a historic P/E ratio of 20 times.
Merchant Securities’ debut was modest compared with a 42 per cent gain by Everbright Securities Co in its market opening when it debuted on August 18, after setting an IPO price at 58.56 times its last year earnings.
Everbright Securities benefited from investor enthusiasm toward IPO shares after the government in June lifted a 10-month ban on public share offerings.
But that zeal has waned, analysts said, with a steady stream of new offerings and last month’s launch of the Nasdaq-style ChiNext market for start-ups, which surged on its first day of trade but subsequently saw share prices tumble amid worries over high valuations.
The main board also weakened in August, in part due to worries about high valuations and heavy supplies of new shares, although the benchmark Shanghai Composite Index has begun a new upward climb fuelled by optimism over mainland’s economic recovery and corporate earnings. The index has gained nearly 20 per cent since the start of October.
China Merchants Securities said it would use the proceeds of its IPO to supplement operational capital, including expansion in asset management, investment banking, private equity investment, brokerage and proprietary businesses.
Merchants Securities, controlled by port-to-property conglomerate China Merchants Group, has appointed Goldman Sachs’s China joint venture, and Swiss bank UBS as underwriters for its Shanghai IPO.
