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China Merchants Securities makes weak debut

By Zhou Yan (China Daily)
Updated: 2009-11-18 07:58

China Merchants Securities, which raised 11.1 billion yuan ($1.63 billion) from its initial public offering, rose 8.42 percent on its debut at the Shanghai stock exchange yesterday, making it the weakest opening in three years on the domestic bourse.

Shares of Merchants Securities, the eighth-largest domestic brokerage, opened at 35.01 yuan, up 12.9 percent from its IPO price of 31 yuan.

It reached the day's high of 35.7 yuan in early trading before closing at 33.61 yuan, chiefly due to worries over its high valuation which dampened the market's enthusiasm. The total turnover value was 5.93 billion yuan.

New listings on China's two major bourses saw more than 30 percent gains on their first trading day since the China Securities Regulatory Commission lifted a nine-month ban on IPOs in June.

"Merchants Securities' over-valued IPO price has left limited room for growth on the secondary market even though brokerage firms were expected to post rosy reports this year due to the booming stock market," said Zhang Zhaowei, an investment manager at Guojin Asset Management Center.

The IPO price of 31 yuan was more than 56 times its earnings last year, and much above stock analysts' estimates of 25 yuan at most. In comparison, the dynamic price-to-earnings ratio of the securities sector was 32 times on average.

China Merchants Securities was the second broker to go public this year following its rival, the Beijing-based Everbright Securities, which surged 48 percent on its debut on Aug 18 after setting an IPO price that was 58.6 times its 2008 earnings.

Merchants Securities said it would use the proceeds from the share sale to boost its operating capital.

Related readings:  China Merchants Securities sets IPO price range  China Merchants Securities to launch IPO this week  Everbright, Merchants Securities fare well  Merchants Securities applies for IPO

Chinese investors' craze for new share offerings has usually led to a jump in the prices of IPO shares on trading debut regardless of fundamentals.

The benchmark Shanghai Composite Index has climbed almost 80 percent this year after plummeting 65 percent last year.

Analysts, however, said the market enthusiasm toward IPO shares has cooled as the continual supply of new shares on the main board and the launch of the NASDAQ-like ChiNext board for start-ups in October amid tightened liquidity, have made new shares lose their momentum.

Merchants Securities' shares are likely to see corrections ahead and its price might better reflect fundamentals in the future, said Zhu Lixu, an analyst at TX Investment Consulting Co based in Shanghai.

The securities sector edged down 0.99 percent yesterday. CITIC Securities, the country's largest brokerage by earnings, lost 1.37 percent to 30.23 yuan, while Everbright Securities sank 3.53 percent to 24.56 yuan.