Shineway prices at top end of the range

Market momentum pushes pricing to top of the range.

The central and northern China-based anti-viral drugs producer ended up pricing at the very top end of the range on Sunday evening, following the end of the book building process on Friday. So positive was investors' reaction that global coordinator, that sole book runner and sponsor Cazenove felt able to squeeze up the bottom end of the range from HK$3.55 to HK$3.70.

The company raised HK$872 million ($111.8 million) from the sale of 200 million new shares at HK$4.36. This represents 25% of the enlarged share capital, rising to 27.7% if the over-allotment option is exercised.

The institutional book was 11 times oversubscribed, with the one-on-one conversion rate as high as 80%. The Hong Kong retail portion was 230 times oversubscribed triggering the full 50% clawback.

Specialists say 58% of demand came from Europe and 42% from Asia, with 80% of the institutional allocation going to 15 tier one and tier two clients.

The share price represents a 2005 price earnings ratio of 11.35 times and a 2004 price earnings ratio of 14.7 times. The company's closest peer is said to be Tongrentang, a mainland Chinese medicine manufacturer. Shineway's 2004 P/E ratio stands on a par with Tongrentang's, but its 2005 figure has come at an estimated 11% discount.

Considering the national reputation of Tongrentrang, its very long history and its powerful brand name, specialists believe Shineway has scored a good result.

"Shineway's strategy is different to Tongrentang, so a steep discount wasn't necessary," says one observer. "Shineway targets its medication at senior citizens and children."

Shineway is forecast to make a net profit of Rmb 250 million ($30.4 million) this year. Turnover was Rmb 604 million last year.

The deal was undoubtedly helped by its good timing, with the recent interest rate cut in Hong Kong prompting retail investors to take their money out of the bank and place it into the stock market. The counter will start trading in Hong Kong on Thursday December 2, with one specialist saying he expects a good after market performance.

"Sentiment is shifting, especially in Hong Kong, with road shows like Air China offering standing room only," he concludes.

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