Stocks News
- Industrial Bank may make strong debut
Date: 5-Feb-2007 Sources: (Shenzhen Daily)
SHARES in mid-sized Industrial Bank are expected to jump about 60 percent on their Shanghai debut today after investors set aside US$150 billion in a bet on the bank's growth.
Last week's stock market tumble has dampened expectations for an even bigger 'pop?or first day gain, some analysts had predicted the stock would double.
'The recent volatility of the market may cause Industrial Bank's first-day performance to be less spectacular than many had originally expected,'said analyst Wu Yonggang at Guotai Junan Securities.
'But the company's fundamental business will be solid for the next 2-3 years,'and investors remain keen to get in on the growth story, he added.
Industrial Bank, based in the southern province of Fujian and partly owned by Hong Kong's Hang Seng Bank, is expected to be one of a string of highly successful financial sector listings in China.
The benchmark Shanghai stock index's drop last week to about 9 percent below last month's all-time high has focused investors' attention on sky-high bank sector valuations, and will introduce an element of moderation in first-day trade.
But Industrial Bank's healthy growth prospects, the relatively conservative pricing of its initial public offering (IPO) and the huge amount of funds prepared to buy the stock are expected to ensure a very strong debut.
Industrial Bank raised 16 billion yuan (US$2.1 billion) last month in China's fourth-largest domestic IPO. The issue attracted a record 1.16 trillion yuan in subscriptions and was 73 times subscribed, a very high level for a big financial stock.
Before last week's market weakness, some analysts had predicted Industrial Bank's A shares would leap to 30 yuan or higher on their first day from an IPO price of 15.98 yuan.
Shanghai's latest large-cap IPO, China Life Insurance Co., more than doubled its IPO price on its Jan. 9 debut at the peak of the market's bull run, though four other US$1 billion-plus IPOs last year rose an average of only 26 percent on their debuts.
Now, the market generally expects Industrial Bank to move in a 22-30 yuan range before closing around 26 yuan, according to a poll of seven analysts. Any rise above 30 yuan would likely attract heavy selling, they said.
A price of 26 yuan would value Industrial Bank at about 34 times estimated 2006 earnings of 0.77 yuan a share.
That would be slightly dearer than an average 31 times for nine banks listed on the Shanghai, Shenzhen and Hong Kong exchanges, but cheaper than 40 for the Shanghai-listed A shares of China Merchants Bank and 36 times for China Minsheng Banking Corp.
'Industrial Bank is likely to trade around the average P/E of the banking sector, any price far above that would likely spark active selling,'said banking industry analyst She Minghua at China Securities.
'During the market's recent roller-coaster ride, investors have been talking about possible excess valuations of banking stocks, in particular Industrial Bank's peers like Merchants Bank and Minsheng Bank,'he said.
By traditional measures, the Shanghai market still looks significantly overvalued at 38 times firms' 2005 earnings. The Hong Kong market, which has nearly 40 of the same companies, is at 17 times.
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