China stock market

Wuxi AppTec tells Chinese investors to go slow as obsession with unicorns explodes

Shares of the medical researcher, which listed in Shanghai this month after delisting from New York in 2015, have surged almost five-fold from its IPO price

PUBLISHED : Friday, 25 May, 2018, 6:22pm
UPDATED : Friday, 25 May, 2018, 11:42pm

Wuxi AppTec, China’s biggest contract medical researcher that floated in May, has made the unusual move of issuing a statement warning its share price is rising too fast and its valuation is excessive.

The company closed at 107.36 yuan on Friday in Shanghai, rising by the allowed daily maximum of 10 per cent for the 13th straight session. Its share price has now surged almost five-fold from its initial public offering price.

“The company’s price-to-earnings ratio is relatively high compared with comparable companies in the industry,” said Wuxi AppTec in the statement filed to the stock exchange. “We particularly remind investors of investment risks, rational decision making and prudential investments.”

But shareholders seemed to be ignoring the warning.

The buying binge had made Wuxi AppTec almost a third more expensive than the industry average valuation, the company said.

The Wuxi frenzy is now seen by some brokers as highlighting a growing challenge facing China’s regulators, who have been gearing up to lure larger overseas-listed Chinese companies and unicorns in the technology industry to list domestically.

“The market has pretty high expectations for the performance of the stock as it’s actually the first unicorn company to hit the domestic market,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai.

“The stock may rise by the 10 per cent daily cap for another two or three days. It’s a bit speculative.”

While individual investors almost dominate 80 per cent of the nation’s stock trading, it is now feared their participation in trading in these companies may well lead to runaway movements in other share prices.

The term unicorn has become a label for start-ups companies in the early stages of development with valuations of at least US$1 billion.

But the pricing euphoria for IPOs has also been spreading beyond the secondary market.

Foxconn Industrial Internet, a unit of the world’s biggest contract electronics maker Hon Hai Precision Industry, for instance, said on Friday its tranche of domestic IPO shares reserved for retail investors drew demand for 294 times the stock on offer.

The stock may rise by the 10 per cent daily cap for another two or three days. It’s a bit speculative
Wu Kan, Shanshan Finance

Wuxi AppTec, a biological industry unicorn, was taken private in a US$3.3 billion deal in 2015, delisting from New York and moving to the Shanghai Stock Exchange.

The drug maker is now valued at 111.9 billion yuan (US$17.5 billion), making it the fifth largest among mainland-listed pharmaceutical companies, according to Bloomberg data.

Wuxi AppTec was valued at 86.1 times estimated earnings against the 65.4 times multiple for the industry average, the company said in the exchange statement.

Despite the warning, a further rally in share prices seems on the cards. The turnover velocity of the stock was still slow, signalling that holders are reluctant to sell and betting that the moment will continue. Only 2.4 per cent of Wuxi AppTec’s outstanding shares, or 2.5 million shares, changed hands on Friday.

But Wuxi AppTec is not the best-performing IPO on the mainland’s exchanges this year.

That title now goes to Tianjin 712 Communication & Broadcasting, a maker of civil communication equipment, which has surged more than 800 per cent from its offer price in February in Shanghai.