The new price range of HK$2.30 to HK$2.75 is 5.7% higher than the previous range at the top end and will value the company at between 11.1 and 13.3 times its projected 2006 earnings, according to sources familiar with the offering. This compares with the initial range of HK$2.00 to HK$2.60, which translated into a 2006 PE (price to earnings ratio) of 9.7 to 12.6 times,
Taipei-listed Taiwan Cement, whose China operations are similar in size to CNBM, trades at a 2005 PE of 13 times and a 2006 PE of 11.2 times, according to Bloomberg data.
The state-owned enterprise, which makes a diverse range of building materials and is one of the leading cement manufacturers in the country, is offering 654 million H shares, of which 90.1% are new and the remainder existing shares. At the base size the company is selling 33% of its issued share capital, but there is also a 15% greenshoe that could increase the total funds raised to HK$2.07 billion ($266 million).
Observers say the higher valuation comes as a result of a strong response from investors to what they regard as a well positioned player in a high-growth sector û albeit with a few quirks such as its holding company structure. The book is said to have been multiple times covered yesterday (March 9) with virtually no price sensitivity. However, the company and sole bookrunner, Morgan Stanley may find it difficult to push the price all the way to the top of the new range, given that sentiment for H shares has been souring.
Over the past three days the H share index has tumbled a combined 5.5%, and CNBMÆs bigger rival Anhui Conch Cement has lost 9.3% in the past four days. Primarily due to its scale advantages, Anhui Conch still trades at a 2006 PE of about 22 times, however.
ôThe concerns are mainly to do with valuations after the H share index had gone up about 20% this year,ö the director at a local brokerage says. ôPeople are still interested in China shares, but as they worry that Japanese interest rates will start to rise it is logical to take profit and see what sort of impact that may have.ö
The strong trading debut of Nine Dragons Paper is also expected to help convince investors to put in orders for another China player, market watchers say. The container board manufacturer, which raised $504 million in a heavily oversubscribed IPO, has gained 36.8% since it listed on March 3.
CNBM is expected to price its offer on March 16 and the shares are scheduled to start trading on March 23.
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