China South Locomotive Soars at Shanghai Debut


China South Locomotive'sshares rose more than 70 percent in their Shanghai debut on Monday, buoyed by a low IPO price and the firm's strength in China's train manufacturing sector, after it raised $1.5 billion in a scaled-back Hong Kong and Shanghai IPO.

But analysts said the strong performance by China South Locomotive & Rolling Stock Corp local-currency A shares would not do much to bolster the country's weak stock market, which has fallen 60 percent from its peak last October.

"South Locomotive is an isolated case, with the debut price propelled in part by the low IPO price," said senior stock analyst Chen Jinren at Huaxia Securities in Nanjing.

"Its rise cannot quell investor jitters about an economic slowdown both at home and abroad, nor can it boost sentiment after the prolonged stock market slump."

South Locomotive, the country's largest train maker, opened at 3.86 yuan versus a Shanghai initial public offering price of 2.18 yuan. It eased slightly to 3.75 yuan by 0217 GMT, up 72 percent from the IPO price.

The benchmark Shanghai Composite Index fell 1.7 percent in early morning trade.

A Reuters survey of six industry analysts last week gave a median forecast of a 60 percent rise in the stock to 3.5 yuan on its first trading day, with a wide range from 2.8 yuan to 4.2 yuan.

"South Locomotive's unique position in China's rapidly expanding rail vehicle market sparked strong interest among investors," said machinery industry analyst Xu Caihua at Guodou Securities in Beijing.

"The company's value means a trading price of around 3.5 yuan is reasonable. Prices over that will spark profit-taking later."

South Locomotive's dual Hong Kong and Shanghai offering was Asia's third-largest this year.

The Shanghai offer of 3 billion A shares, or 30 percent of its expanded share capital, attracted huge demand of 2.27 trillion yuan ($330 billion). It was also the first major equity listing in nearly four months, after Zijin Mining's debut on April 25.

Its A-share oversubscription ratio was one of the highest for a big IPO in the past two years, despite the steep drop in the stock market.

The Beijing-based firm accounts for around half of China's railway and subway rail vehicle market. It has said it would use the funds to upgrade technology, expand capacity, build factories and make acquisitions overseas.

South Locomotive's Shanghai IPO was priced at just over 16 times forecast earnings per share, compared with 28 times for China Railway Construction in February and 21 times for China Railway Group last November.