SHANGHAI: Nine Chinese companies, among the first to float on China’s red-hot Nasdaq-style tech board, announced prices of their new share offers yesterday, taking advantage of investor fervour to market themselves at valuations some view as lofty.
The busy week of initial public offerings (IPOs) comes after an official announcement that the first batch of 25 companies will start trading on Shanghai’s tech-heavy STAR Market on July 22.
This week, 21 of them are taking subscriptions from investors.
The new tech board has done away with government control of IPO quantity and pricing, allowing companies and underwriters to set prices based on market demand.
As a result, valuations of the IPOs, measured by earning multiples, vary widely, ending the unofficial but always observed pricing cap of 23 times a company’s trailing profits.Advanced Micro-Fabrication Equipment Inc (AMEC), a maker of semiconductor equipment, priced its new offering at 29.01 yuan (US$4.22) per share, or 170.8 times its 2018 earnings, excluding extraordinary items.
In contrast, China Railway Signal & Communication Corp priced its offering at 5.85 yuan (85 US cents) per share, or 18.18 times its 2018 earnings, the lowest multiples of the nine firms.
Still, the IPO price is higher than Monday’s closing price of its Hong Kong-traded shares, at HK$6.05 (77 US cents).
Challenged by an investor if the IPO price is rational, AMEC’s underwriter argued during an online roadshow that the valuation is justified by the company’s “huge growth potential.”
In addition, the price/sales ratio, rather than the price/earnings ratio, is a better valuation yardstick for semiconductor companies, Wu Zhijun, investment banker of Haitong Securities, told the investor. — Reuters