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SCMP Reporter

Shares of Shandong Chenming Paper Holdings dropped 16.67 per cent on their debut yesterday, bucking a general upward trend on the stock market and making the company the second-worst performing new stock so far this year.
Chenming Paper, which had priced its shares at HK$9 each to raise about HK$3.2 billion, saw its share price tumble HK$1.50 to close at HK$7.50.
As a result, retail investors suffered a paper loss, excluding other expenses, of about HK$750 for each board lot of 500 shares.
'The volatile market is the major factor behind Chenming Paper's share slump,' said Nelson Chan Kai-fung, a general manager at Bright Smart Securities.
To reduce potential investment risks, many investors had 'simply stopped buying new stocks', Mr Chan said.
'But [Chenming Paper] is a renowned paper producer and its fundamentals are solid,' he said. 'So from a mid to long-term perspective, the stock still is worth buying when market conditions stabilise.'
The Hang Seng Index rebounded 1.16 per cent yesterday. Even so,  it is down  4,486.8 points or 16.13 per cent in the year to date.
Ten out of 16 new listings this year have dived  on their first day of trading. Chongqing Machinery & Electric, the largest industrial conglomerate in the country's western region, was the worst debut performer,  slumping 19.23 per cent last Friday.
'Chenming Paper's current valuation is reasonable and actually lower than peers such as Nine Dragons Paper (Holdings) and Lee & Man Paper Manufacturing,' said a fund manager who bought the shares said. 'We don't intend to sell the stock just because of its poor performance on the first trading day.'
Chenming Paper's offer price represented about 9.6 times its forecast earnings for this year, lower than Nine Dragons' 12 times and Lee & Man Paper's 11 times, a research report showed. Nine Dragons finished flat at HK$7.13 yesterday. Lee & Man Paper fell 1.14 per cent to HK$13.84.
'We  anticipated a decline [in Chenming Paper's share value] mainly as a result of the recent market volatility,' said a banker who attended the trading debut ceremony. 'But from a long-term perspective, the company's strong profitability will help boost its share price.'
With annual production capacity of about 3.17 million tonnes, Chenming Paper is the country's largest paper producer. It generated revenue of 14.88 billion yuan (HK$16.88 billion) last year, up 27.07 per cent from 2006.  Net profit surged 148.13 per cent to 994 million yuan.
Guotai Junan Securities, the sole sponsor of Chenming Paper's share offering, projected a net profit of 1.7 billion yuan on sales of 18.1 billion yuan this year, followed by a profit next year of 2.1 billion yuan on sales of 19.3 billion yuan.
Chenming Paper is the first company to add H shares after listing A and B shares in December last year. Its B shares rose 2.37 per cent to HK$7.35 yesterday while its A shares jumped 7.27 per cent to  at 11.80 yuan.



Chenming Paper tumbles 16.7pc on debut despite market rally