Hong Kong Economic Times 2008/03/11
Qiu Shiwen

Employing a phased issuance of stock, the mainland offering of China Railway Construction Corp A-shares closed 28% higher than their initial public offering price on debut yesterday (March 10th), the lowest first day gain of any mainland stock issue in a year. Markets anticipate a 30% valuation gap between the mainland float and H-share release this Thursday in Hong Kong.

At the Shanghai Stock Exchange yesterday 1.96 billion China Railway Construction A-shares were traded, opening at 11RMB and closing at 11.64RMB, 28.19% higher than its initial public offering price of 9.08 RMB but still 30% below market forecasts. China Railway Construction is employing a phased float strategy that includes a 3.12 trillion RMB cap on A-share initial public offer purchases.

Securities Times analysts believe China Railway Construction A-shares underperformed consensus forecasts primarily due to a large drop in US stocks which caused a slide in the mainland share market. Low market volume and activity disproportionately suppressed China Railway Construction’s large-cap stock. On this ocasion, the rather high issue price also dampened investor enthusiasm.

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Haitong Securities analysts give China Railway Construction A-shares a six month target price of 14RMB, given that China Railway Construction’s strengths closely complement those of China Railway Engineering Corporation. Together these two groups form one of the strongest, most extensive integrated construction conglomerates in the both mainland and the world.

China Railway Construction’s initial public H-share offer ended last week. It achieved 290 times the allotted pre-bids at a price of 10.7 HKD. Investment was capped at 540 billion HKD, breaking the record market cap set by the Hong Kong float of Alibaba last year. Going on sale this week in Hong Kong, it is estimated the valuation gap will reach 30%.

Hong Kong Finet Holdings cites leading futures executives, who advise with an opening price already over 50 times projected profit, investors considering investing in China Railway Construction’s Hong Kong float should carefully consider whether or not to buy in.

China Railway Construction’s core business is civil engineering and architecture and future growth will depend on increases in gross profit. In the period 2006-2010 rail construction and related investment in mainland China will total approximately 1.25 trillion RMB, and investment in public roads and highways between 1.2 and 1.4 trillion RMB.

Excerpts from original text:

大陸中鐵建19.6億A股昨天在上海證交所掛牌上市,開盤價為人民幣11元,終場收在11.64元,較IPO定價人民幣9.08元上漲28.19%,低於市場預期30%的漲幅。中鐵建採用先A後H的發行方式,其中A股IPO凍結申購資金達人民幣3.12兆元。

中鐵建本業是工程建築,未來業績提昇空間將依靠毛利的增加。大陸「十一五」期間,鐵路建設及相關投資約人民幣1.25兆元,公路及高速公路投資達人民幣1,200億到1,400 億元。