CHINA Railway Construction Corp, whose shares start trading in Shanghai today, may not sparkle on its debut performance as its larger rival China Railway Group Ltd due partly to weaker market conditions.
But analysts said the stock is still worth buying over the long track, given its leading position in the domestic rail construction sector and growth in overseas business. This was already reflected by its much over-subscribed initial public offering which raised a combined US$5.4 billion in Shanghai and Hong Kong, the world's largest to date this year.
China Railway Construction, which priced its Shanghai sale at 9.08 yuan (US$1.3) per share at the top of an indicative range may rise 43 percent to close at 13 yuan today, according to a Reuters poll of analysts. China Railway Group's A shares surged nearly 69 percent on December 3 last year.
"Because the market is weaker now, 43 percent would be acceptable,'' said a Guotai Jun'an Securities analyst. He added China Railway Group's 69-percent gain was partly due to investor enthusiasm as there was no comparable stock in the domestic market then.
Shares which made their mainland listing debut last year in a bull market often saw their prices doubled or even tripled while the key Shanghai index almost doubled. But the Shanghai Composite Index is 30 percent off the all-time high reached in mid-October due to a flood of new shares.
China Railway Construction had to cut its Shanghai portion of the IPO to 2.45 billion shares from an originally planned 2.8 billion shares. Its IPO had to be postponed by the regulator because of the weak market. China Railway Construction's Hong Kong shares will start trading on Thursday.
The firm, builder of the Qinghai-Tibet railway and the maglev railway in Shanghai, will trade at 40 times its estimated 2008 earnings of 0.33 yuan, based on a share price of 13 yuan, roughly the same price/earnings ratio as China Railway Group. The average 2008 P/E ratio of construction firms listed on the A share market is 31.1, Guotai Jun'an said.