Shares in Chinese herbal shampoo maker BaWang International (Group) Holding Ltd soared more than a third in its market debut on Friday, bucking a weaker broader market, in a sign of strong demand for consumer goods stocks. BaWang, which hired movie star Jackie Chan and pop singer Faye Wong to promote its products, sold 700 million shares at a price representing 18 times its estimated earnings for 2009.
The stock rose as high as HK$3.20 per share after opening at HK$2.95, compared with its initial public offering price of HK$2.38 with 773 million shares changing hand. The IPO is the most popular in Hong Kong so far this year in terms of subscription among retail investors and analysts say the strong response could be a sign of a pick up in appetite for new listings.
BaWang's retail public offering portion was 446 times subscribed and the company priced its HK$1.67 billion ($213.6 million) IPO at the top end of the indicative range. "That's the way the Hong Kong market functions; when something is hot everyone wants a piece of it," said Jackson Wong, investment manager with Tanrich Securities.
Analysts said BaWang's debut price was in line with expectations given weakness in the broad market, which was down 0.46 percent at midday and set for a fourth day of falls. Friday's sell-off was triggered by disappointing US jobs data that pummelled Wall Street shares.
IPO issuance in Hong Kong is down more than 70 percent so far this year but a stock market rally has prompted many companies to reconsider reviving listings that were put on hold last year. So far in 2009, 14 companies have launched IPOs and raised about HK$19.2 billion (US $2.5 billion).
Demand for IPOs has heated up recently, especially for consumer goods-related companies on the mainland betting they will benefit as China's economy looks set to be among the first to recover from a global downturn. "Though BaWang has outperformed the market, it is still early to say appetite for IPOs has returned.
It is the demand for consumer goods related issues that boosted reception of the issue," said Alex Tang, research director from Core Pacific Yamaichi International. The retail offering of the recent IPO of Chinese sportswear retailer 361 Degrees was over 40 times subscribed.
BaWang's retail public offering portion was increased to account for 50 percent of the shares on offer from an initial 10 percent and the international placing portion was cut back to 50 percent from an initial 90 percent to meet strong demand from retail investors.
The company will use the proceeds to expand production and the company's distribution network. HSBC and Morgan Stanley managed the deal. Another new listing China Qinfa Group rose as high as HK$2.80 on its debut on Friday, up 11.1 percent from its IPO price of HK$2.52 each.
The Chinese coal trader priced its HK$630 million ($81 million) Hong Kong IPO at top end of range, raising capital for investment in new production facilities. Qinfa sold 250 million shares at a price representing a 2008 price-to-earnings multiple of 9.5 times. China Everbright Capital handled the deal.
Among the popular IPOs so far this year, China's Real Gold Mining had drawn much of the attention when the retail portion of its IPO was 68 times subscribed in February, fuelled by a rally in gold price and a deep discount to its peers.
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