China's First US-Style IPO Shares Increase In Market Defying Debuts

Despite a lacklustre market overall, several of the first firms to list under China's new registration-based initial public offering (IPO) system saw their shares more than triple in their debut on Monday.

The listing of the ten companies on the Shanghai and Shenzhen main boards completes China's new US-style IPO system, which aims to make public share sales more market-oriented.

The approach has already been adopted by Shanghai's tech-focused STAR Market, Shenzhen's start-up board ChiNext, and the Beijing Stock Exchange for smaller businesses.

Shenzhen CECport Technologies, an electronic components distributor based in Shenzhen's southern technology hub, surged 239% after raising 2.25 billion yuan ($327.18 million) on Monday.

Dencare Chongqing Oral Care, a manufacturer of oral products, increased by 98% at the start and then increased by 214%. The other eight businesses, which included Shaanxi Energy Investment and Both Engineering Technology, saw increases ranging from 50% to 120%.

Under the new guidelines, there is no daily trading limit for shares that have listed after an IPO for the first five trading days. Previously, new stocks listed on China's main boards could gain up to 44% on their first trading day and lose up to 36%.

After those five days, however, stocks listed on the main boards will be subject to the standard 10% daily trading limit.

According to Ade Chen, general manager of Guangzhou asset manager Fund Investment, the companies rose because "their valuation and debut prices are not expensive."

According to the prospectus, CECport Technologies' IPO was priced at 26.8 times earnings, which is less than the industry-wide valuation in 2021 of 35 times earnings.

Meanwhile, Dencare's IPO price-to-earnings ratio was 36.8, compared to a 51.6 industry valuation in 2021.

The two figures indicate that the firms are undervalued in comparison to their competitors.

"After that, investors will be more focused on companies' growth potential and fundamentals," Chen predicted.

As Beijing works to revitalise an economy battered by Covid restrictions, the new market-oriented IPO system is expected to accelerate listings and corporate funding.

“The changes brought about by the IPO reform are all-round and fundamental, centred by information disclosure,” Yi Huiman, the chairman of the China Securities Regulatory Commission (CSRC) said, 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,” Yi said.

Overall, China’s benchmark Shanghai Composite fell 0.3% on Monday as geopolitical tensions dampened risk appetite, after China’s military simulated precision strikes against Taiwan in a second day of drills on Sunday.