The price of Beijing Tong Ren Tang Chinese Medicine shares more than doubled on debut yesterday, evoking memories of the small-cap bull run during the internet bubble days.
The Chinese drug distribution and manufacturing company, a spin-off of Tong Ren Tang Technologies, shot up 137 per cent within a couple of hours of trading. It closed the day slightly lower but still up 115 per cent over its offer price.
A brighter outlook for the United States economy and the exceptionally loose monetary policy adopted by major central banks the world over to keep their economies humming have rekindled interest in equities.
The improved sentiment kept the Hang Seng Index above the 23,000-point level yesterday in a fresh three-month high. The index closed 0.58 per cent higher.
"The company has laid out a bold expansion plan for the European market, which is set to be its next growth driver after achieving a meaningful presence in Asia," Beijing Tong Ren Tang chief executive Ding Yongling said in a media briefing yesterday.
Ding said the company planned to spend about HK$100 million on store expansion in its new markets, including Britain and Poland. In the latter, the company would set up a cultural centre to promote Chinese medicine culture.
On its slow inventory turnover, chief financial officer Lin Man said the increase in inventory was the result of a change of accounting procedures and the rising prices of raw materials.
The company's inventory rose to HK$87.2 million last year, from HK$62.1 million in 2011, while the rate of turnover slid to 206 days from 222.
Beijing Tong Ren Tong raised a paltry HK$570 million by selling 200 million new shares, half of which were subscribed by 11 shareholders from Tong Ren Tang Technologies. The rest of the shares went to institutional and retail investors.
The company had priced the shares at the top end of the indicative range, at HK$3.04, about 12 times its earnings last year. It declined to offer earnings and revenue projection.
Beijing Tong Ren Tang's strong performance came as a surprise after a slew of uninspiring debuts by small companies on the exchange. Its opening performance was ranked the third best on the Growth Enterprise Market, an alternative fund-raising platform focused on start-ups, after Tom.com  and Hongkong.com  at the height of the internet bubble in 2000.
Hong Kong investors seem to be turning to initial public offerings amid interest rate cuts and weak currency policies by major central banks that have made stocks a better investment.
Bankers have pinned high hopes on the coming listings of Sinopec Engineering and China Galaxy Securities.
The two large state-owned enterprises are preparing to raise a total US$3.6 billion in Hong Kong, breaking the listing drought of recent months.