State fund emerges as surprise major shareholder in small firms Kunlun and JSTI
‘National team’ emerges as substantial shareholder for the first time in two small firms trading on China’s ChiNext board for startups
Beijing Kunlun Tech and JSTI Group, two small firms trading on China’s ChiNext board for startups, surged more than 7 per cent on Wednesday, after exchange filings showed that a state-backed fund has emerged as a substantial shareholder in both for the first time.
Kunlun, an internet gaming company, jumped 8.6 per cent to 23.13 yuan in Shenzhen, while JSTI, a construction contractor, surged 7.7 per cent to 19.77 yuan. The shares soared by as much as the 10 per cent daily limit in the day’s intraday trading.
Exchange filings from the two companies showed China Securities Finance Corp added holdings of the stocks in the second quarter, making the state-backed fund the fifth-largest shareholders in both firms.
Significantly, the disclosures mark the first time the state fund had been among the top 10 shareholder of any ChiNext-listed startup company.
The purchase by the “national team” – stock investors’ nickname for China Securities – stands in contrast with the move by institutional money managers of shifting out of small-caps, viewed by many as over expensive, and into large companies with low valuations.
A gauge of the 300 biggest companies on the mainland’s exchanges rose to its 19-month high last week, while the ChiNext index is trading close to its lowest level since January 2015.
“This shows there are also good stocks worth investing in among small-caps and there’s some gold in there to be found,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai.
“Not all small-caps are expensive and some have real growth outlook.”
China Securities Finance, a major buyer of stocks during the country’s 2015 equities market rout, which now has US$85.7 billion worth of assets under its belt, held 23.1 million shares, or a 2 per cent stake in Kunlun at the end of June, according to its interim report. It also held 9.62 million shares in JSTI by June-end, according to a separate filing.
The Kunlun report said that its profit for the first nine months will probably rise as much as 44 per cent from a year earlier on growing revenues from mobile gaming businesses.
JSTI’s first-half profits may have increased as much as 30 per cent, according to an exchange filing released earlier this month.
Kunlun is trading at 28 times estimated earnings for this year while the multiple for JSTI is 23 times, according to data compiled by Great Wisdom.
The ChiNext index is valued at 46.7 times earnings, according to data from the Shenzhen Stock Exchange.
Shanshan Finance’s Wu cautioned, however, that the state fund’s purchase of the two ChiNext companies should not be taken as a signal of a reversal of the board’s decline, as most companies are considered expensive. The ChiNext gauge has lost 14 per cent in value this year.