China Power makes sharp IPO trading debut
China Power International, a unit of China Power Investment Corp, made a sharp trading debut in Hong Kong and raised US$321.1 million in the initial public offering (IPO) on Friday, as investors were enticed by its dividend promise and stable earning prospect.
Shares of China Power surged 16.6 per cent above its IPO price of HK$2.53 each and closed at HK$2.95 on Friday, the star performer among Hong Kong stocks in terms of transactions and volume.
The stock moved in a price range between HK$2.825 and HK$3 on the first day of listing. "I am very pleased about the strong debut," said Li Xiaolin, China Power's vice-chairman and chief executive officer.
She said the company would continue the expansion plan to increase its installed capacity by 3.1 million kilowatt this year, and 3 million kilowatt in 2005 and 2006, respectively.
Li, who was confident about the company's earnings prospect this year, added that China Power had raised tariffs twice recently to cushion the negative impact of rising coal prices.
"The stock performance is in line of market expectation as the company's heavy IPO subscription has already signaled a strong debut," said Ben Kwong, director of KGI Asia.
Attracted by China Power's dividend promise of 25 per cent in the next few years and the country's soaring power consumption, Hong Kong retail investors applied for nearly 300 times the shares offered to them, while the institutional portion was about 20 times covered.
The public portion of the sale of 990-million shares in the State-owned power generator was increased from 10 per cent to 50 per cent as a result.
Its IPO price was set at the top end of the indicated range and valued the company at 12.65 times its projected 2004 earnings. The valuation is cheaper than larger peers Huangneng Power International and Datang International Power Generation which are trading at 14-16 times this year's profits.
"China Power's expected acquisition of 25 per cent interest in Shanghai Power from its parent company in 2005 at the earliest as well as the charm of the company's CEO Li Xiaolin, daughter of former Chinese Premier Li Peng are also the major selling points, added Kwong.
Singapore state investment firm Temasek Holdings holds about 3 per cent of the total issued share capital of China Power, and Henderson Land Development Chairman Lee Shau-kee holds about 2.5 per cent.
Citigroup initiated its rating for China Power at a "buy" rating on Friday, with a target price of HK$3.2.
The investment house expected the company's net profits to grow 7 per cent to HK$647 million (US$82.9 million) this year and 20 per cent to HK$778 million in 2005.
The debut performance of China Power was even more brilliant when compared with that of newcomer Hutchison Telecommunications International Ltd (HTIL) whose shares fell below its offer price on Friday.
Shares of HTIL closed 2.66 per cent below the IPO price of HK$6.01 at HK$5.85 on the first trading day on Friday.