China’s priciest IPO of the year makes solid trading debut after listing rules overhaul

Shanghai Suochen Information Technology, China’s priciest initial public offering (IPO) of the year, surged on debut as investors validated the recent sweeping overhaul of listings rules that removed an administrative pricing cap.

Shares of the computer aided engineering (CAE) software developer jumped by as much as 21 per cent to 297 yuan on the Shanghai exchange’s technology-board Star Market on Tuesday, before cooling to 252 yuan at the close, with 65 per cent of the new shares changing hands on the day. The current price valued Shanghai Suochen at 10.4 billion yuan (US$1.5 billion), compared with the average capitalisation of 14 billion yuan for the Star Market.

Shanghai Suochen’s IPO sold shares at 245.56 yuan apiece, which was 369 times its historical earnings, dwarfing the industry’s average multiple of 58, according to data provider Eastmoney.com. The offer price is also the highest among all the 94 offerings made on mainland China’s exchanges in 2023.

The revamps include scrapping the cap on IPO pricing, which had been set at 23 times historical earnings to avoid flops, allowing new shares to rise or fall without exchange-set daily limits in the initial days of trading, and lowering the profit requirements to focus on the quality of information disclosed.

Investors also welcomed Shanghai Souchen’s listing, taking the view that China’s technological self-reliance drive will boost demand for the company’s CAE software products, most of which are supplied to the nation’s defence compaines. China relies on imports for 95 per cent of CAE software, and the 10 biggest suppliers in the domestic market, like ANSYS of the US and Dassault Systemes of France, are overseas companies, according to Huajin Securities and the company’s sales prospectus.