SHANGHAI'S lacklustre B-share market received a shot in the arm yesterday when Shanghai China International Travel Service (CITS) chalked up a 39.4 per cent gain in its trading debut. Opening at 50 US cents against its issue price of 36 cents, the tour operator's shares traded between 48.2 and 54 cents before closing at 50.2 cents, bucking the general trend in the market. The Shanghai B index dipped 0.5 per cent to close at 82.23 points. Turnover in Shanghai CITS was an active 14.88 million shares, representing 24.8 per cent of the 60 million shares issued by the company. The B-share issue makes up 49.8 per cent of the company's enlarged share capital after listing. The sterling performance of the counter on the first day had been expected following the huge oversubscription of the stock earlier this month. 'With a subscription level of 90 times, there were many people who did not get the shares during the placement. They would buy in the first-day trade,' said Patricia Lambert, head of W I Carr's China research. Investors and listing candidates have pinned high hopes on Shanghai CITS, the latest to come on the market after several months of inactivity in the initial public offering market. 'The stock is the latest B share to come on the market for months. That's where the interest comes,' said Samson Chau, a broker with Peregrine Brokerage. Analysts said that while the impressive debut might help boost sentiment for forthcoming B-share flotations in the fourth quarter, fundamentals were essential. 'Investors will only pay for stocks they think are worth the price,' Mr Chau said. Companies expecting to issue B shares soon include Shanghai Posts and Telecommunications Equipment and Lujiazui Finance and Trade Zone Development. Analysts said Shanghai CITS was attractive because of its low price-earnings (PE) multiple, the strength of China's hotel industry and the company's leading position in the tourism sector. 'The stock is sold at a relatively cheap PE of 6.1 times its estimated 1994 earnings, on a weighted average basis,' said Joyce Leung Ho-kit, an institutional trader with Sun Hung Kai Investment Services. Based on yesterday's close, Shanghai CITS was trading at about 12 times its forecast 1994 earnings, she said. Market average for Shanghai B shares is about 13 times. 'The company is cheaper compared with stocks of similar type,' Mr Chau said, citing as an example hotel operator Jinjiang Tower, which is trading at 23 times its 1995 estimated earnings. China, in an effort to become one of the world's major tourist destinations, is developing and expanding its service industry including the hotel and tourism sectors. 'Like Jinjiang Tower, it is all about the service industry, where the growth is rapidly growing. That's why people are interested in it, ' Ms Lambert said. Figures from the National Tourism Administration showed the number of overseas visitors to China last year was 41.52 million, ranking the mainland the eighth largest recipient of foreign travellers. Paul Vibert, research analyst at the Shanghai office of Baring Securities, believed Shanghai CITS had an edge over other operators as it was an authorised agency in arranging overseas tours for mainlanders. 'There's only a handful of travel agencies which are given licences to arrange tours for locals overseas. That's a good point of the company,' he said. Mr Vibert said he expected a rapid growth in the number of mainlanders travelling abroad in view of the booming Chinese economy and an improved living standard. However, Shanghai CITS is not immune to risks. Analysts said the company faced having margins squeezed in the highly competitive environment, and investors switching to other stocks as the company became more stretched in business. 'For the short term, the company's business is fine. But it is expected to face stiffer competition in a liberalising sector,' said Kenneth Bao, another analyst with Baring's Shanghai office. Mr Vibert said: 'The company is placing more emphasis on property-related projects. And it expects to complete one project in 1996-97, when there will be an oversupply of office space.'