H-share candidate Guangzhou-Shenzhen Railway (Guangshen) is pricing its shares between 10 and 12 times this year's earnings, the highest for a Chinese company listed in Hong Kong for almost two years. Guangshen, which is running the 147 km railway line from Guangzhou to Shenzhen, is planning to sell 1.24 billion new shares at between HK$2.47 and HK$2.94 each, sources say. The company will raise up to HK$3.64 billion through the issue of 30 per cent of its enlarged share capital. The issue price will put every share at a multiple between 10.1 and 11.9 times 1996 prospective earnings on a fully diluted basis. Each American Depositary Receipt, representing 50 ordinary shares, will be sold at between US$16 and US$19. The pricing is high compared to Nanjing Panda Electronics, another H-share candidate, which wants to sell its shares at between 5.8 and 6.5 times based on its sponsor Peregrine Capital's forecast for this year's earnings. After the initial euphoria of buying Chinese shares, the price earnings multiples pitched by H-share companies have taken a downturn since the second half of 1994, with investors being selective in the counters. Guangshen's management was in Tokyo yesterday, kicking off its international roadshow, and is due in Hong Kong on Thursday to meet the territory's fund managers. The company and its sponsors are to finalise the issue price on May 10 after a book-building during the roadshow. Thornton Fund Management fund manager John Lai said: 'Guangshen's pricing is comparatively aggressive because we are not talking about a fast earnings growth company.' Although the company argues it has autonomy in setting rail fares, the concern is whether there is sufficient traffic to support a fare increase. Guangshen has seen its profitability decline since the opening of the Guangzhou-Shenzhen Highway in 1994. This year Bear Stearns expects the company to suffer an earnings drop of 14 per cent to 1.07 billion yuan (about HK$996.52 million). THE PLAN FOR LISTING Multiple between 10.1 and 11.9 times 1996 prospective earnings. 1.24 billion new shares at HK$2.47 to HK$2.94 each. ADRs will be sold at US$16 to US$19.
