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Founder surges on its Shanghai trading debut

(China Daily)

09:57, August 11, 2011

A Founder Securities' office in Shanghai. Shares of the Changsha-based company surged more than half after its debut on the Shanghai bourse on Wednesday. Provided to China Daily

SHANGHAI - Shares of Founder Securities Co Ltd, the Chinese partner of Credit Suisse Group AG, surged by more than half on its Shanghai debut on Wednesday, aided by a shift in stock market sentiment after a massive sell-off that investors think was overdone.

Founder, the 19th-biggest brokerage in China by assets, raised 5.85 billion yuan ($910 million) through the third-biggest IPO on the Chinese mainland market this year.

Investors, who had feared a repeat of a post Lehman crisis-style market collapse and pushed the Shanghai stock market earlier this week to its biggest sell-off in nine months, regained their poise as global stock markets recovered.

"We believe the market has reached the bottom after the recent sell-off. Our house view is that the market will rebound in the medium term and this will benefit securities firms," said Wang Mingfei, an analyst at Orient Securities Co Ltd.

Shares of Founder traded as high as 6.04 yuan on Wednesday, after opening at 5.51 yuan. Its IPO price was 3.90 yuan. The Shanghai stock market had fallen as much as 10 percent since the IPO was priced, but has now halved that loss.

China's retail investor-driven stock markets have a history of sharp first-day movements, where 40-50 percent gains and sharp falls have tended to be the norm. This year, stock debuts have been mostly lower.

Of the five Chinese mainland IPO deals worth more than $500 million so far this year, only Hainan Rubber Industry Group Co Ltd rose on its debut when it jumped 84 percent, according to Thomson Reuters data.

The benchmark Shanghai Composite Index rebounded on Wednesday, rising 1.8 percent after suffering its worst three-day sell-off since November. The index has fallen 10 percent so far in 2011.

Analysts warned that the surge in Founder's shares was making the company expensive compared with its rivals.

"Investor mood is as volatile as the market itself. Fundamentally, Founder is obviously excessively over-priced," said Liang Jing, an analyst at Guotai Junan Securities Co Ltd in Shanghai.

Founder Securities, which competes with larger rivals such as Citic Securities Co Ltd and Haitong Securities Co, earned a net profit of 1.27 billion yuan in 2010 compared with 1.39 billion yuan in 2009.

The current market price values Founder Securities at around 39 times consensus estimate for 2011 earnings. That's compared with the 14 to 16 times fetched by Citic and Haitong, according to Thomson Reuters data.

Founder owns 66.7 percent of Credit Suisse Founder Securities, one of 10 Sino-foreign investment bank joint ventures in the country. Credit Suisse owns the remainder.

China may have the world's biggest stock market capitalization by 2015 as the government aims to boost the use of capital markets, analysts said.

At present, it has more than 2,000 listed companies and the world's second-biggest stock market capitalization, according to Thomson Reuters data.

Chinese securities companies have seen their revenue drop in recent months as concerns over a worsening debt crisis in Europe and the US economic health hit trading business.

The combined profits of 15 publicly traded Chinese brokerages fell by more than a fifth in July from the previous month to 1.64 billion yuan, companies' data showed.

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