iKang Posts Solid But Unspectacular Debut

iKang posts solid trading debut

Just days after worrisome signs emerged that the frothy market for Chinese IPOs in New York was losing steam, clinic operator iKang Healthcare (Nasdaq: KANG) has become the latest newly listed company to send out a mixed signal about the recent bull market for Chinese shares. iKang has just made its trading debut on the Nasdaq, posting a performance that was quite respectable though far from the big fireworks we were seeing late last year from most newly listed Chinese firms.

The showing marks the latest hint that the wave of bullish sentiment towards Chinese IPOs has crested, though anyone who can manage to list in the next 30 days could still do do respectably. Prospects for new listings after mid-May could be a bit more problematic, meaning we could see some companies accelerate their plans to get to market before then. Most notably, I do expect we’ll see upcoming mega-listings for Sina’s (Nasdaq: SINA) Weibo microblogging site and e-commerce giant JD.com make their debuts within the next 2 weeks.

All that said, let’s look more closely at iKang, which really should have commanded a healthy premium as the first pure clinic play for western investors looking to buy into China’s rapidly evolving healthcare sector. Most Chinese now have to go to hospitals to see doctors, creating artificially high prices and other commercial pressures that lead to substandard care. To alleviate that pressure, Beijing is pushing strongly for the establishment of well-run smaller clinics like the ones that iKang operates, which have far lower costs.

iKang made its first public IPO filing just over a month ago, giving a fund-raising target of up to $150 million. (previous post) It actually raised just a tad more, or $153 million to be exact, by selling 10.9 million American Depositary Shares (ADSs). (English article; Chinese article) iKang met its fund-raising target after seeing strong demand that allowed it to price its ADSs at $14 apiece, which was at the top of its $12-$14 range.

The company’s debut also looked quite solid, with iKang’s shares initially jumping nearly 10 percent when trading began. Short-term buyers locked in their gains after that, though the stock still managed to close a respectable 8.6 percent above its offer price. That kind of pricing and debut both look quite solid, and are a bit of an improvement over education services provider Tarena (Nasdaq: TEDU), which sputtered out of the gate last week as it became the first Chinese company to list in New York this year. (previous post)

While iKang clearly did better than Tarena, even the former’s debut was far less spectacular than most of the half dozen Chinese firms to list in New York in the last 2 months of 2013. Most of those posted strong double-digit gains on their first trading days, and went on to see their shares double or more in their first few weeks. Of course one could argue that neither Tarena or iKang are typical of 2013’s year-end euphoria, since all of the companies to list back then were from the tech space.

Still, Sina’s Weibo is from the tech space and issued its own worrisome signals last week. Weibo was once a superstar often called the Twitter of China, though it’s lost some momentum lately to newer rivals. It surprised the market last week when it lowered its fund raising target by more than 10 percent, and also gave a market value that was far below what many expected. (previous post) With everything that’s happened in the past week, including this latest debut for iKang, I would expect to see Weibo price its shares quickly and quite possibly debut next week. That will provide a major indicator for future sentiment, and I expect the results could be disappointing with a sideways to slightly-down trading debut.

Bottom line: iKang’s solid but unspectacular IPO marks the latest signal that bullishness towards new Chinese offerings in New York has crested, boding poorly for a Weibo listing that could come next week.

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