The Straits Times / The Business Times News on AsiaPharm

S'pore, HK attract diverse China listings

SGX's niche is in smaller companies, while state-owned enterprises prefer HK

(SINGAPORE) They are a different breed altogether - the China companies that are listed on the Hong Kong exchange and those listed in Singapore.

Not only is there a size difference, there is also a disparity in the performance and the investors' following of the companies subsequent to the listing.

Last year, the Singapore Exchange (SGX) attracted 28 China or China-related companies to its main board. This compared with 22 for the Hong Kong exchange (HKEx). But this is the only aspect in which SGX is ahead of HKEx when it comes to China stocks.

It lags in other aspects. For example, of the 28 China companies that found their way to SGX, only 10 are above their initial offer price as of yesterday. On average, the 28 stocks are down 7.7 per cent.

Meanwhile, of the 22 that went public in Hong Kong in 2004, 15 - or 68 per cent - are in positive territory. At the end of trading yesterday, they are on average 25 per cent higher than their initial public offer price. This is despite the fact that the pricing of the shares in both countries at the time of IPO was about the same, at 13.7 times historic earnings.

The best performing China IPO in Singapore last year was pharmaceutical company AsiaPharm. It has risen 114 per cent from its offer price. In Hong Kong, the best performer among the 2004 crop of China listings is software developer SinoCom Software Group. It is up 199 per cent to date.

The statistics do not surprise issue managers. One manager, who asked not to be named, said: 'Hong Kong is still the preferred market for these Chinese companies. The only reason they come to Singapore is because the pipeline in Hong Kong is full.'

Hong Kong, he explained, was preferred because of investment interest in China stocks. 'There are big institutional funds which provided support for the share price of these China stocks. And that in turn attracts more good quality companies to list there. It's a virtuous circle,' he said.

And Chinese companies are making a beeline to list in Hong Kong despite it having a more stringent set of requirements than those in Singapore.

Being a bigger and deeper market, Hong Kong, in addition to local funds, also attracts money from all over the world. And that has provided further support to the share price of these Chinese companies.

This after-listing support is evident in the continued analysts coverage and the richer valuations for the China IPOs in Hong Kong.

Sixteen out of the 22 China companies listed in HKEx last year continued to be on the radar screen of stock analysts in that there are earnings estimates for them in the Bloomberg database. This compares with just 11 out of the 28 in Singapore.

And on average, they are trading at 12.4 times their estimated earnings for 2005, significantly higher than the 6.9 times accorded to those listed in Singapore.

Another reason for the better performance of China stocks in Hong Kong is that they tend to be large state-owned companies, said another issue manager. Thus these companies enjoyed favoured policies from the Chinese government.

Furthermore, size also matters when it comes to attracting the support of major funds. The average market capitalisation of the China companies listed in Hong Kong is some 10 times that of those listed in Singapore - $1.4 billion versus $140 million.

The biggest China IPO in Hong Kong last year was telecoms operator China Netcom. As of yesterday, it has a market cap of HK$70.9 billion (S$14.9 billion). The biggest China company listed on the SGX main board last year was Bio-Treat, with a market cap of about $548 million.

Excluding China Netcom, the average market cap of the China companies listed in Hong Kong is still some five times that of Singapore's.

Aw Soon Beng, chief operating officer of Westcomb Financial Group, said Singapore's niche is still in small- and medium-sized enterprises. 'The issue size is smaller. And with funds which are mostly local, when the local stock market sentiment is weak, it is only natural that the support for stocks listed here is weak.'

But it does not mean that Chinese companies that list in Singapore are worse off in terms of quality, he emphasised.

'We just have to build up a name for ourselves slowly,' he said. And progress is being made. A few years ago, Hong Kong was the automatic choice for almost all Chinese companies planning to list overseas. Now, Singapore is seeing an increasing number of Chinese IPOs, albeit smaller ones.

Another observer noted that the fiasco at China Aviation Oil had hit investor sentiment towards China stocks which are perceived to be high risk. 'Perhaps it means China IPOs on SGX are good bargain now for value investors and funds,' she said.