Building contractors are taking advantage of recent windfalls to list while valuations are high, said Alex Wong, fund manager at Ample Capital Ltd., who predicted the sector’s stocks will slide in the next year given the high valuations, steep construction costs and a dwindling pipeline for large infrastructure projects.
An early warning may have been Ching Lee Holdings Ltd., which went public in March. The shares soared nearly 2,000 percent through July 13, but one day in September suddenly tumbled 91 percent for reasons the firm never publicly explained. The stock has not recovered. A woman who answered the phone in Ching Lee’s communications department said the company would not comment on share price moves.
Lun of Geo Securities said small Hong Kong companies often trade at their potential shell value, the amount mainland investors would pay to take control of a Hong Kong-listed company. The going rate for a shell is HK$500 million, he said, speaking generally.
Hong Kong and China have recently sought to tighten rules on shell transactions amid concerns that incoming owners and asset injections were evading the scrutiny applied to new listings. Last year, a record 45 Hong Kong public companies completed a change of ownership through majority equity sales, data compiled by Bloomberg show.
Even if Luen Wong is an attractive target for a buyer, its dramatic post-IPO climb has made it too expensive, according to Ample Capital’s Wong.
“I don’t think the price is justifiable,” he said. “Even for a shell.”
This article was provided by Bloomberg News.