EXPECTATIONS that the general offer for Rich City Packaging Holdings would be a prelude to a major strategic move saw its shares surge yesterday, but analysts warned it was becoming too speculative. The counter yesterday put on 17.1 per cent to close at $2.225, up 32.5 cents. It was the market's second biggest percentage gainer for the day. Turnover was $37.46 million with 17.76 million shares changing hands. Active trading made the company the third most active stock in terms of volume. Since chairman Henry Chong Kim-fu sold almost half of his 70 per cent controlling stake to Martin Kwok Ying-chuen last Tuesday, Rich City's price has doubled. The stock has risen 107.9 per cent from its price of $1.07 a share a week ago. Analysts said investors were buying because Mr Kwok had strong connections with the mainland. They expected the company's future earnings to be boosted by Mr Kwok's general cash offer, which was announced yesterday. Mr Kwok, who is also an executive director of China-backed Shougang Concord Grand, bought the first 33.89 per cent interest in the packaging products designer and manufacturer at $1 a share from Mr Chong through his solely-owned Shimada last week. There was speculation that the new shareholder would transform Rich City and possibly bring it under Chinese control. Seapower Securities analyst Patrick Chia said: 'It's certainly not buying on the company's present fundamentals. 'Rich City was only listed on April 29 at $1 and then wandered at that level . . . it was impossible to double the value of its fundamentals within such a short period of time.' Worldsec International assistant manager Stephen Cheng agreed the price rise was caused by talk that the company would be re-engineered into another company. According to its last annual report, Rich City's net assets were worth only 40 cents a share. It recently ceased doing business with its major US distributor, Jewelpak Corp. Noting that the present price had already doubled Mr Kwok's general offer, analysts warned that speculators might be trying to boost the price before they sold. 'Some speculative investors think that Mr Kwok will have to raise the price,' said Jenny Ting, senior research analyst at Mansion House Securities. It remained uncertain who Mr Kwok's backers were, as there was no information in yesterday's announcement about his financing sources. Shimada's financial adviser is merchant bank China Hong Kong Corporate Finance, which does much of its business with companies that have connections with China. Now a condition of Mr Kwok's bid, which values all of the company at $250.8 million, is that he gets to control at least 50 per cent of Rich City's shares. But he will have to convince a significant proportion of the company's 30 per cent minority shareholders to accept the bid, because exchange rules will not allow Mr Chong to sell much more of his stake until April 29, 1995. Mr Chong has to control at least 35 per cent of the company - which is regarded as the minimum for a controlling interest - for at least a year from the company's listing. This means that he can only sell Mr Kwok another 2.78 million shares before that date. The stock could fall as quickly as it rose, said Ravi Narain, research director at Peregrine Brokerage. He said that it was mainly small speculative investors who were bidding up the stock.