The much-anticipated new round of reforms to the Initial Public Offering (IPO) system is accelerating. At the same time, the pace of new stock issuance has also begun to slow down, with the issue price-earnings (P/E) ratio continuously declining over the past four months. Besides the factor of a sluggish market, the reduction in the supply of new shares and the decline in valuation are closely related to the regulatory authorities' tough shift in regulatory direction.
Several investment banking professionals have indicated that the industry-wide average P/E ratio released by China Securities Index Co., Ltd. (shortened as "China Securities Index") and Shenzhen Securities Information Co., Ltd. (shortened as "Shenzhen Securities Information") will become a hard benchmark for future IPO pricing inquiries. "Although we used to compare valuations of already-listed companies within the same industry as a reference standard, it hadn't been formalized into an industry rule. Now, it's confirmed that this will be implemented in writing," said a senior investment banking professional from a southern securities firm.
In February, the weighted average P/E ratio of new stocks was less than 20 times. Data statistics show that entering 2012, excluding holiday factors in January, calculated based on the start date of online subscription for new stocks, there will still be 17 companies issuing stocks for the first time in February. Compared to the previous months where more than 30 companies would issue stocks, the issuance has clearly slowed down.
With the slowdown in issuance, the recent issue P/E ratios have also continuously declined, even with some recovery in the index in February, marking the fourth consecutive month of decline. Companies with high issue P/E ratios have also gradually decreased, and the monthly average issue P/E ratio has dropped for four consecutive months.
Looking at the average issue P/E ratios of each month since the reopening of new stock offerings, starting from the short-term small peak of the average issue P/E ratio in November last year, the issue P/E ratio has been declining ever since. In November 2011, the weighted average issue P/E ratio of new stocks was still over 35 times, which was a small peak since May 2011, and then it started to decline continuously, dropping to 25.78 times in January this year, and less than 20 times in February.
In February, although Hualu Baona had an issue P/E ratio exceeding 80 times, the issue P/E ratios of other companies were all below 40 times, with over 60% of the companies below 30 times. The issue P/E ratios of China Communications Construction Company and Dongfeng Shares were both less than 20 times. And from the current data, China Communications Construction Company is also the company with the lowest issue P/E ratio since the reopening of new stock offerings in 2009, at only 10.59 times.
The issue prices of new stocks have also continued to drop for four months. From the issuance situation of recent months, the number of stocks priced below 20 yuan has gradually increased. Excluding several large-cap blue-chip stocks such as China Communications Construction Company issued in February, Rongke Technology from the Growth Enterprise Market was issued at...