HONG KONG: Sichuan Expressway Co Ltd's locally-listed H-shares surged over 5 percent yesterday, outperforming the broad market, after the mainland toll-road operator's A-shares skyrocketed on their trading debut in Shanghai.

The company's H-shares closed the session at HK$3.60, up 5.6 percent, much higher than the 1.35 percent gain in the benchmark Hang Seng index.

However, the H-shares' gain paled in comparison with the day's 203 percent surge in the company's A-shares, which closed at 10.90 yuan, after soaring as much as 324 percent to 15.25 yuan earlier in the day.

Analysts and dealers caution investors against chasing the H-share higher, saying that the share has been fairly valued.

"The extremely high premium in (the company's) A-shares over the H-shares reflected the craziness of some mainland investors and the general restraint of Hong Kong investors," said Francis Lun, general manager at Fulbright Securities Ltd.

He agrees that the company's planned acquisition of a toll road from its parent will help increase its future revenue.

The toll-road operator will acquire Sichuan Chengle Expressway, an 86.4km expressway in the province, from its parent for 1.1 billion yuan with the cash raised from its A-share IPO.

The company raised 1.8 billion yuan by issuing 500 million A-shares at 3.60 yuan per share in the Shanghai bourse.

"The acquisition will help raise its future revenue by 10 percent at most," Lun said.

However, he sees little upside room for the share as its current valuation has fully reflected any potentially positive factors after climbing from a low of below HK$1.0 in March.

The H-share is currently valued at 15 times its expected earnings for this year.

"A 15 times price/earnings multiple is reasonable for a toll-road operator, as its revenue is unlikely to surge," Lun said.

Matthew Kwok, research head at Tanrich Securities Ltd, also does not see much traction in toll road operators in general, as share prices have been fairly valued.

In particular, Sichuan Expressway will benefit less from global economic recovery in the future, as it has suffered less from the current downturn - in terms of decline in vehicle flow - compared with its peers, which operate in coastal cities and have suffered more from slumping exports, the analyst said.

Peter Lai, a director at DBS Vickers, also cautions investors against being too bullish on the stock.

"I won't recommend it for long-term investors now. It could be ok for short-term speculative bets though," he said.

(HK Edition 07/28/2009 page4)