Sinovel slumps 10pc on overpricing concerns
Sinovel, China's largest wind power turbine maker, saw its share price slump nearly 10 per cent on its first day of trading in Shanghai on concern it is too expensive.
Shares of Sinovel, whose largest shareholder is Dalian-based state-owned heavy machinery maker DHI DCW Group, closed yesterday at 81.37 yuan (HK$95.64), 9.6 per cent lower than the 90 yuan offer price to investors.
While initial public offerings have been generally well received on the mainland, with most performing well on their debut, analysts said investors have become more value-oriented as sentiment became subdued in the past year. The mainland was the world's third-worst performing stock market last year.
Some analysts said shares of Sinovel, the industry's most advanced firm, were overvalued.
'We believe a reasonable valuation range for Sinovel is 65 yuan to 80 yuan,' wrote Citic Securities analyst Yang Fan in a report. 'An offer price of 90 yuan is too high, we suggest investors avoid secondary market risks.'
Yang believes Sinovel is worth 20 times its forecast profit for this year, compared wth 25 times that the offer price represents. The No2 market player, Xinjiang Goldwind Science & Technology, fetches 16.7 times this year's forecast earnings in Shanghai while third-ranked Dongfang Electric Corp, which also makes coal-fired and hydro units, commands 22 times.
Donghai Securities analyst Tao Zhengao is less bearish, but his fair-value estimate on Sinovel of 84 yuan to 93 yuan still leaves upside from the offer price. Tao noted revenue growth for wind power equipment slowed last year and operating risks were rising.
'Whether it is ... due to fast growth or the challenge in ensuring technical quality stability or commercialisation of higher-end products and difficulties in internationalising sales, Sinovel has yet to experience much of the risks,' he wrote in a research note.
Although China became the world's largest wind power market by installed capacity last year thanks to government support, surpassing the United States, lagging power grid expansion meant more than 30 per cent of its capacity is idle.
Overcapacity in turbine making caused by a flood of new entrants squeezed profit margins of most participants except for industry leader Sinovel thanks to lower unit cost as a result of its bigger production scale.
Sinovel chairman Han Junliang said early this month the company could achieve annualised profit growth of at least 30 per cent in the next five years.
