IPOs: Spring, Wanda Cinema Leap In Debuts
Bottom line: Wanda Cinema and Spring Airlines represent a new generation of major private companies to list in China, and should enjoy strong share gains over the short to medium terms following their IPOs.
There was plenty of spring in the stocks of 2 hot companies that listed in China this week, with budget carrier Spring Airlines (Shanghai: 601021) and theater operator Wanda Cinema Line (Shenzhen: 002739) jumping 44 percent in their trading debuts. The pair are part of a new generation of privately owned companies starting to list on China’s main stock markets, stealing the spotlight from an older group of state-run firms that still dominate the country’s 2 main stock exchanges in Shanghai and Shenzhen.
Obviously profits and broader performance will be the biggest determiner of whether these companies’ stocks continue to rise after the euphoria of their IPOs starts to fade. But from the perspective of a western buyer like myself, Wanda Cinema and Spring Air are 2 of the first Chinese-listed firms that I’ve seen whose stocks I would personally consider buying.
Let’s quickly review these 2 major listings, which began with Spring Airlines trading debut on the Shanghai stock exchange on Wednesday, followed a day later by the launch of Wanda Cinema’s shares on the Shenzhen stock exchange. Shares of both companies probably would have risen far more than the 44 percent gains they posted on their first day, but Chinese rules cap first-day gains at that amount due to the high number of short-term speculators in the market.
Spring Airlines shares continued to fly in their second trading day, rising by the daily 10 percent limit, and are now 58 percent above their IPO price of 18.16 yuan per share. The company raised a relatively modest 1.8 billion yuan ($290 million) in the offering, and has said it will use the funds to buy new airplanes as it embarks on an aggressive expansion that includes sharply boosting its number of international destinations. (Chinese article)
Spring is China’s oldest budget carrier and is already quite profitable, posting a net profit of 732 million yuan in 2013, up 17 percent from a year earlier. The company has made its strong gains by offering a cheaper alternative to China’s much larger field of stodgy, state-run airlines. I’m personally not a big fan of flying on Spring due to its cost-cutting tactics that make the flying experience a bit unpleasant. But I’m much more bullish on the airline’s stock, as the company does seem quite well run and is an enviable position as China’s oldest and best known budget carrier.
Next there’s Wanda, which is also emerging as China’s premier movie theater operator that is banking on a national box office that is the world’s second largest and likely to overtake the US in the next 10-20 years. China box office sales grew 36 percent last year to nearly $5 billion, and are now about half the size of the US.
Wanda priced its IPO shares at 21.35 yuan each, and watched as they rose by the 44 percent limit on their first trading day to close at 30.74 yuan. (English article) Like Spring, Wanda plans to spend much of its $210 million in new funds on expansion of its theater chain, with plans for 260 theaters nationwide by the end of next year. It already has partnerships with a number of big western technology names including Imax (Toronto: IMX) and Dolby (NYSE: DLB), showing it’s serious about build up a state-of-the-art chain of theaters.
As I’ve said above, both of these companies look quite exciting from the perspective of western investors who like to buy stocks based on the growth prospects and management of their underlying companies. Too many of China’s state-run firms have business models and management that are quite opaque, making it difficult to assess their prospects and easy for them to hide problems. By comparison Wanda Cinema and Spring are quite transparent and easy to understand, and look set to enjoy strong growth in both their profits and share prices over the next few years.
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