A worker replacing lamps stands by a window of Shanghai branch of the Agricultural Bank of China on the Bund, in Shanghai on June 30. Given the bank's profitability last year and the current dull market sentiment, the Agricultural Bank of China's shares should be priced below 2.4 yuan per share, analysts say. [Philippe Lopez / AFP]
Beijing - The hype is there, but the brouhaha is missing, as Agricultural Bank of China (ABC) gets ready to launch its mega float on the mainland market.
The hype is evident from the huge crowds that ABC has been drawing at its investor meetings. The excitement was also visible in the faces of the over 100 investors crowded in a small room in downtown Beijing as they listened to a presentation on the public issue.
Judging by the responses after the presentation, it was evident that the investment appetite was not that strong.
Stung by the recent wild market swings, investors seem to be no longer in the mood for taking any undue risks.
Most of the investors were apprehensive that the bank shares will fall below the offer price on listing.
Chen Yingjun, a newspaper editor, said the crowds have been thinning in the past few days. "Footfalls at the Southwest Securities office near the Third Ring Road in Beijing have been steadily diminishing," he said.
An investor himself, Chen says he is frustrated because the market has dropped to such low levels, and there's no sign of it stopping.
"I don't blame ABC, but I will not subscribe to its shares in such a weak market," he said.
Chen's pessimism stems from the hard lessons he learnt about the risks of investing in new shares in the past few months.
"I've already gained enough experience by losing money - look at how much tuition fees I have paid," Chen said.
"I subscribed to shares of Huatai Securities in February. Share prices have dropped more than 30 percent from the listing time."
The dismal performance of initial public offerings is also dissuading prospective investors from testing the ABC float waters.
Till date, there have been 14 big cap listings on the mainland market this year.
Out of this nearly 10 have fallen below their IPO price, said a recent Wind Info report.
"The price is the key," said Tang Tao, a 53-year-old investor. "The IPO prices are relatively high when compared with the current market situation. ABC's new shares are no exception," he said.
"I would rather buy Industrial and Commercial Bank of China (ICBC) or China Construction Bank (CCB), as they have more solid fundamentals and valuations are not expensive," he said.
ABC's price-to-book valuation of 1.56 to 1.65 times is cheaper than ICBC and CCB, but it is slightly higher than Bank of China (BOC).
However, analysts said ABC's valuation is still comparable to that of BOC.
BOC shares were traded at 3.46 yuan, or around 1.6 times its book value at the close of Shanghai trading on Wednesday, with a total market capitalization of around 920 billion yuan.
BOC made a profit of 80.8 billion yuan in 2009, while ABC's net profit was 65 billion yuan in the same period.
Given the two bank's profitability last year and the current dull market sentiment, the ABC shares should be priced below 2.4 yuan per share, analysts said.
"I expect the ABC shares to fall below the IPO price. The fall possibility is more than 50 percent," said Tang.
"If ABC's new shares are priced below 2.5 yuan, I might still consider investing in the float," he said.
But then all is not gloom. There are still a considerable number of investors who plan to invest in the ABC issue for long-term returns.
"ABC is not a risky investment. Many investors want to make quick money from the stock market," said Li Wanting, a 45-year-old day trader and prospective investor.
"They are not willing to wait for three or five years for the company to grow," he said.
"I plan to subscribe to 100,000 yuan-worth of shares and consider it a long-term investment. I see it as a legacy for my children. I am confident about the bank's future development," he said.
"It is really hard to earn money from the stock market now. ABC is not a good choice, but it is a choice," he said.