The decision by nearly 20 IPO candidates – including green tech company Polygree and wireless solutions provider Lierda – to lower their minimum bid price over the past month is welcomed by some investors who expect lower prices. market-oriented on the Beijing Stock Exchange.
Unlike the Shanghai and Shenzhen stock exchanges, the Beijing Stock Exchange – set up about a year ago to finance small businesses – requires IPO candidates to set a minimum price for the sale of their shares to protect the interests of shareholders’ investors existing.
Despite a recent recovery in China’s stock prices, thanks to hopes of a post-pandemic recovery, trading on the Beijing Stock Exchange remains depressed, forcing companies to be pragmatic in their IPO financing plans.
Polygree cut the minimum price of its IPO offering to its book value of 5.79 yuan per share, 64% below the minimum it set in June, according to its latest prospectus this week. The company said its net income nearly halved in the first six months of 2022 due to the COVID pandemic.
Lierda also lowered its minimum IPO price close to its book value of 1.72 yuan per share from 8 yuan previously, a drop of nearly 80%. The company’s net income decreased by 30.9% in 2022 compared to the previous year, partly due to the COVID-19.
Other companies that have reduced their IPO price forecasts include Shandong Inov Polyurethane Co, Xinganjiang Pharma and Sichuan Kezhi Civial Defense Equipment Co.
The race under price floors is the result of companies’ blind faith in the past, the anemia of trading on the Beijing Stock Exchange and a desire to woo investors, said Zhou Yunnan, founder of NS Capital Ltd.
The Beijing Stock Exchange’s benchmark index, the BSE 50, is trading at 21 times earnings. In contrast, Shanghai’s high-tech STAR market is trading at a price-earnings ratio of 45, while Shenzhen’s startup board ChiNext is trading at a multiple of 39.
“For investors in the Beijing Stock Exchange, this is great news because… lower IPO prices create a higher profit margin” after the start of trading in shares of the Beijing Stock Exchange.
This view is shared by SWS Research, which states in a statement: “The pricing power is given to the market. The superior companies will be selected, while the inferior ones will be eliminated”.