Infrastructure boom pushes Shanshui Cement IPO up 9%
Updated: 2008-07-05 07:52
By Lillian Liu(HK Edition)
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China Shanshui Cement Group rose 9 percent in its Hong Kong trading debut Friday.
It's another example of investor confidence in big construction-related companies - expected to benefit from the mainland's infrastructure boom.
The positive initial public offering (IPO) by the mainland's second-largest cement producer makes it one of just a handful of companies to receive a warm welcome into the market this year.
Analysts say the rare IPO growth is directly related to the appeal of construction-related stocks, regardless of the fact that the overall market is in the midst of a slowdown.
Dick Lee, a corporate finance officer at Phillip Securities, noted that "the government is encouraging big cement companies to take over their smaller competitors in order to save energy and reduce pollution. And since Shanshui Cement is one of the two top cement groups on the mainland, it is bound to benefit from the government policy".
Shares in Shanshui Cement closed yesterday at HK$3, up from the IPO price of HK$2.80. The company raised HK$1.82 billion by selling 650.8 million shares.
Francis Lun, general manager at Fulbright Securities, noted that a good precedent had already been set for construction-material stocks.
"The robust performance of Asia Cement's debut in May made investors confident in Shanshui Cement's IPO," Lun said. "But it is just a unique case; the overall IPO market is still very gloomy."
Asia Cement (China) Holdings, a mainland arm of Taiwan's Asia Cement Corp, jumped 38 percent in its May debut. It was the second-strongest Hong Kong IPO this year.
Cement companies in general are expected to benefit from strong mainland demand, particularly in areas such as the earthquake-ravaged Sichuan province.
The Shandong-based Shanshui Cement, however, is likely too far away to benefit from the Sichuan rebuilding, Lee said.
Shanshui Cement said it plans to use the proceeds from its IPO to expand its production capacity through acquisitions and building new production lines.
Overall market up
While other Hong Kong stocks didn't match the good day Shanshui Cement had, the overall market still ended up 0.8 percent Friday.
And given the Hang Seng Index (HSI)'s combined drop of nearly 4 percent in the two previous days, even the little gain was something to be happy about.
Investors chased bargains and cashed in on heavyweight financial institutions on hopes of robust earnings this year.
Industrial & Commercial Bank of China (ICBC), the world's largest lender by market capitalization, said on Thursday that its first-half net profits probably grew more than 50 percent, from 40.8 billion yuan a year earlier, lifted by interest income and fees.
The announcement pushed ICBC shares up 2 percent to HK$5.11.
"It is only transient," Lee said. "Investors are generally skeptical of the overall market performance, so no good news can really boost the stocks. Although optimistic earning forecasts may result in some good sentiment."
He said the companies' strong earnings won't solve the fundamental problems hurting the market, "as rising oil prices and a slowdown in the US are the major factors dragging the performance".
HSI closed up 181 points at 21,423.82. The China Enterprises Index, or Hong Kong-listed mainland companies, rose 85.26 points to 11,225.
(HK Edition 07/05/2008 page2)