China's STAR Market stocks cede lofty valuations

Shanghai Haohai Biological Technology

13/11/2019 08:52

By Luoyan Liu and John Ruwitch
    SHANGHAI, Nov 13 (Reuters) - Shares of half a dozen tech
firms on China's newly-launched, Nasdaq-style STAR Market slid
below their initial public offering (IPO) prices this month as a
rapidly slowing economy forced investors to reassess their high
valuations. 
    Shanghai Haohai Biological Technology  688366.SS  and
Tianjin Jiuri New Materials  688199.SS , a manufacturer of
photoinitiators, fell below their issue prices on Nov. 6. 
    Shares of Tianjin Jiuri closed at 62.74 yuan on Wednesday,
down 6% from its issue price. That represents a discount of
16.3% to a record high hit on the first day of trade.
    The IPO of this firm, the quickest so far to register such a
 drop in value, was launched on Nov. 5 at a price-earnings ratio
of 42.2, versus 16.9 for peers in the chemicals industry.
    Four other firms have seen their share prices slide as
investors looked more closely at their business operations and
results. Ningbo Ronbay  688005.SS  and Suzhou TZTEK Technology
 688003.SS  fell more than 60% from their highest levels.
    All six firms had said before listing that their
price-earnings ratios exceeded their respective industry peers,
warning investors against a risk of losses caused by potential
share price drops.
    Wang Jingyao, an analyst with Lianxun Securities, said the
initial investor euphoria over the market has given way to a
more rational assessment of companies' fundamentals.
    The Shanghai Stock Exchange's tech market, or Science and
Technology Innovation Board, was launched in July to much
fanfare and was seen as the Chinese equivalent to Nasdaq.
    Designed to allow pre-profit companies to list and for
venture capitalists to exit investments in loss-making
start-ups, the market was to help China along in its search for
tech self-sufficiency amid a bruising trade war with the United
States. It now comprises more than 50 companies.
    Trading on the new board for homegrown tech firms hit fever
pitch on its debut day, with shares up as much as 520%, sending
valuations to eye-popping levels and raising concerns over
whether firms were over-valued.  urn:newsml:reuters.com:*:nL4N24N0GP 
    The ongoing correction is partly due to high valuations of
those companies at the IPO stage, Wang added. 
    Analysts at Dongxing Securities noted that investors had a
shorter 3-month learning curve this time, compared with China's
previous start-up exchange ChiNext  .CNT  where it took 6 months
for stocks to fall below IPO prices.

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China's Ronbay and TZTEK Tech fall below IPO prices and over 60
pct from record highs    https://tmsnrt.rs/2Qe7wt1
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 (Editing by Vidya Ranganathan and Jacqueline Wong)
 ((luoyan.liu@thomsonreuters.com; Reuters Messaging:
luoyan.liu.thomsonreuters.com@reuters.net))