China’s first batch of shares under new IPO system surges in trading debut

SHANGHAI – Some shares among the first batch of stocks to list under China’s registration-based initial public offering (IPO) system more than tripled in their debut on Monday despite tepidness in the broader market.

The listing of the 10 companies on the mainboards in Shanghai and Shenzhen marks the full roll-out of China’s American-style IPO mechanism, designed to make public share sales more market-oriented.

The system had already been adopted by Shanghai’s tech-focused Star Market, Shenzhen’s start-up board ChiNext and the Beijing Stock Exchange for small companies.

Shenzhen CECport Technologies, an electronic components distributor based in China’s southern technology hub, opened up 161 per cent on Monday, and surged as much as 239 per cent, after it raised 2.25 billion yuan (S$435.2 million). The counter closed at 38.20 yuan, up 222 per cent.

Under the new rules, there is no daily trading limit for the first five trading days for shares that have listed after an IPO. Previously, new stocks listed on China’s mainboards could jump as much as 44 per cent and slump no more than 36 per cent at debut.

However, after those five days, stocks listed on the mainboards will be subject to the regular 10 per cent daily trading limit.

Dencare Chongqing Oral Care, an oral products-maker, opened up 98 per cent and soared as much as 214 per cent. Other companies, including Shaanxi Energy Investment and Both Engineering Technology, rose between 50 per cent and 120 per cent.

Guangdong Fund Investment general manager Ade Chen said the stocks surged as their valuation and debut prices were not high, adding that investors will “focus more on companies’ growth potential and fundamentals” afterwards.

CECport Technologies’ IPO was priced at 26.8 times its earnings, below the industrywide valuation in 2021 of 35 times earnings, according to its prospectus.

Dencare’s price-to-earnings ratio for the IPO was 36.8 versus a wider industry valuation of 51.6 in 2021, its prospectus said.

Both figures indicate that the companies are undervalued relative to their peers.

Overall, China’s stock benchmark index slipped roughly 0.3 per cent on Monday, as investors focused on China’s drills around the Taiwan Strait and awaited more data to gauge the strength of China’s economic recovery after it dropped restrictive Covid-19 policies.

The market-oriented IPO system reform is expected to speed up listings and corporate fund raising as Beijing seeks to revive an economy ravaged by Covid-19 restrictions.

“The changes brought about by the IPO reform are all-round and fundamental, centred by information disclosure,” said Mr Yi Huiman, chairman of the China Securities Regulatory Commission, according to a report from state media CCTV on Monday.

“The service function of the capital market to the real economy, especially technological innovation, has been greatly improved,” added Mr Yi. REUTERS