The latest three initial public offerings to hit the Hong Kong market traded up on their debuts yesterday, putting an end to the recent spate of poor aftermarket performance. And, in an encouraging sign that this wasn't a one off, grey market trading in Wynn Macau suggested the casino operator will open about 2% above its IPO price when it starts trading today.
“We are now seeing a more normal IPO market, with deals trading more on fundamentals and valuations than on market sentiment,” said an equity capital markets banker.
The best performer yesterday was Ausnutria Dairy Corporation, which soared 27.5% above its IPO price to HK$5.10. The producer of baby milk powder last week priced its IPO near the bottom of the indicative range, raising a total of $154 million.
Coming in second was Yingde Gases, which added 12% to its IPO price, closing at HK$7.84. The gas producer priced its deal at the middle of the indicative range. The IPO bringing in the smallest returns yesterday was Sichuan-based iron ore producer China Vanadium Titano-Magnetite Mining, which closed 5.14% above its IPO price.
It is worth noting that the IPO pricing appeared to have an effect on after market performance: the deal with the lowest pricing relative to the initial price range, Austnutria, performed the best. But a mid-point pricing didn't help some of the other high-profile deals that have been fighting for investor attention over the past few weeks. Metallurgical Corporation of China priced its $2.35 billion H-share offering at the mid-point, only to trade down 11.7% on the first day. The same is true of Peak Sport Products and Glorious Property, which fell 17% and 14.5% respectively in their debuts.
Needless to say, companies that priced at the top, such as China South City Holdings and Nasdaq-listed Shanda Games, also did badly – losing 23% and 14% respectively. All these companies have remained under pressure and are still trading well below issue price, suggesting either that the price ranges may have been set at too high a valuation to begin with -- or that the valuation in question had become relatively less attractive in the weeks between the start of the roadshow and listing.
Yesterday's performance, combined with a rising Hang Seng Index, bodes well for other companies about to hit the market. Of the numerous IPOs that were launched in September, only three have yet to start trading -- Wynn Macau today, and Powerlong Real Estate and Shenguan Holdings next week.
According to prices quoted on pre-IPO trading platform PhillipMart, Wynn Macau changed hands at HK$10.30 at the end of grey market trading yesterday, slightly above its IPO price of HK$10.08. A spin-off of the Macau casino assets owned by Las Vegas gaming magnate Stephen Wynn, the company priced its $1.63 billion IPO at the top of the indicated range, resulting in an enterprise value-to-Ebitda multiple of 14.5 -- at the high end of where the other Macau casino plays are currently trading.
In more general equities news, Citi suggested, in its latest Global Equity Quarterly, that global equities are about to emerge from the “twilight zone” into a period of strong recoveries in corporate earnings. A twilight zone is a period when equities have low valuations while macroeconomic indicators point upwards. There is also a lot of buying as equity prices shoot up. When the earnings recovery does start, returns from equities become less spectacular. But when it comes to Asia, it looks as if the region already has the recovery priced in.
Asia's markets have “risen more in this cycle that any prior recovery,” said the report. “At 2.1 times price-to-book value the market has discounted further into the future than ever before. Earnings revisions have never been this high, [they are] higher now than even out of the Asian crisis when earnings fell by 95%, not just 30%.”