Guilin Sanjin Pharmaceutical, the first company to raise money from the stock market through an initial public offering after the nine-month ban on IPOs was lifted, is set to reap the benefit of the pent-up speculative fervor of investors.

According to reports, the drugmaker's IPO was oversubscribed a whopping 584 times in online subscription from individual investors and 165 times in off-line bidding by institutional investors.

So far, the 46 million new shares have been allotted to subscribers at 19.8 yuan per share. The ratio of allocation to subscription was 0.17 percent.

Guilin Sanjin plans to raise 910.8 million yuan from the IPO, some 44 percent more than it originally planned, thanks to the heavy oversubscription and high issue price.

The company's PE (price to earnings) ratio was about 33 times the issue price, which is near the high end of the bidding range.

"The PE ratio was nearly to the valuation' upper limit in the price inquiry process, leaving little room for further increase after market debut," said Ye Songtao, analyst, Changjiang Securities Co.

China Merchants Securities, the company's main underwriter, suggested a price band of 17 yuan to 21 yuan a share during the road show. Many institutional investors were said to have made bids at the lower end of the price band. They included Guotai Junan Securities, Anxin Securities, Bohai Securities and Shanghai Securities.

But many others had apparently made much more generous bids. Changjiang Securities, for instance, was said to have offered the highest price of between 18 yuan and 20 yuan.

"Investors maybe see it (Sanjin) as a promising stock if the issue price was at around 10 yuan level and the PE ratio at 15 times," said Liu Jipeng, professor, China University of Political Science and Law. "Now, the stock seems over priced."

In an online survey by China's largest Internet portal Sina.com, about 82 percent of the respondents said the issue price was unreasonably high. Yet, 45 percent of the respondents said share prices would surge when trading begins.

"It's not surprising to see the high issue price of Sanjin, since it is the country's first IPO deal in nine months," said Li Daxiao, director of the research institution at Yingda Securities.

The securities watchdog has so far allowed Guilin Sanjin, Zhejiang Wanma Cable Co and supermarket operator Your-Mart Co to proceed with plans to sell shares on the small- and medium-sized enterprise (SME) board in Shenzhen.

Meanwhile Zhejiang Wanma Cable Co, a cable provider for China State Grid Corp, increased the amount it will raise from the second initial public offering this year by 68 percent to 575 million yuan.

The company plans to sell 50 million shares at 11.5 yuan apiece. That compares with its initial target of 342.5 million yuan.

Industry analysts said the increased sale size signals a revival in investor appetite for equities in a market that has gained 63 percent this year.

"The demand and supply can be more balanced when more IPO deals are approved and investors are more rational in selecting stocks," said Li.

(China Daily July 2, 2009)