Shanghai Airlines makes lukewarm market debut
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By Erin Prelypchan
SHANGHAI, Oct 11 (Reuters) - Shanghai Airlines Co Ltd, China's sixth largest
carrier by traffic volume, made a mediocre domestic share debut on Friday as a
weak market offset investor enthusiasm for its strong profit record and
reputation.
Shanghai Airlines was the second company to make a less-than-stellar debut on
the Chinese market this week, although its performance was broadly in line with
expectations.
Shares in the country's second largest mobile carrier, China Unicom, ended
their first day of trade only 27 percent higher on a market where many IPOs are
priced cheap to ensure windfall profits and can double or triple on the first
day of trade.
Government-backed Shanghai Airline's 1.032 billion yuan ($125 million) A share
issue, reserved for domestic investors, debuted at a 33.8 percent premium to
its IPO price at 7.13 yuan, in line with analyst forecasts of a 30 to 40
percent rise.
The shares had fallen back to 6.81 yuan by the closing bell, up 28 percent --
still strong by international standards but unimpressive in a market where
debuts are often explosive.
Analysts said the state-owned airline's six-year profit record and backing by
the powerful Shanghai city government had attracted investors, but a weak stock
market and a relatively high IPO price had hurt its initial performance.
"You can't say there's anything really great about the debut. The environment
for airline stocks over the past two years hasn't been ideal -- costs are high
and competition is tougher," said Amy Lin, analyst at Capital Securities in
Shanghai.
"Shanghai Airlines is probably one of the best of them, but the sector isn't
doing very well, so its potential to rise a lot isn't that high."
The A shares of larger Shanghai-based airline, China Eastern, closed at 5.16
yuan while Hainan Air's finished at 6.78 yuan.
Shanghai Air said it would use the IPO proceeds to buy four Boeing airliners
and a Bombardier plane, adding to its fleet of 25 aircraft to strengthen its
competitiveness in the crowded domestic aviation industry.
COMPETITION GETTING TOUGHER
Competition is set to increase for smaller, regional airlines such as Shanghai
Airlines after China formally launches three new aviation giants on Friday,
grouped under Air China, China Eastern and China Southern.
Analysts said Shanghai Airlines must expand quickly to stay competitive.
"China's plan to set up the three aviation giants will make it more difficult
for small carriers like Shanghai Airlines," said industry analyst Luo Wen of
Guotai Junan Securities.
The groups will each have around 50 billion yuan ($6 billion) in assets and
collectively account for 80 percent of the Chinese aviation market.
Shanghai Airlines has assets of only 6.6 billion yuan, but it has the strong
advantage of being based in Shanghai, China's richest city and one of its three
main aviation hubs.
"The structure of Shanghai Airlines' routes is one of the best among domestic
airlines and its assets, including those from the city government, are good,"
said analyst Liu Jun of Haitong Securities.
A poor stock market is likely to weigh, however.
Markets have been rattled by low volumes, a raft of initial public offerings
and a crackdown on corruption. The Shanghai composite index is down 32 percent
from a peak in June 2001.
The downturn and Shanghai Airline's relatively large IPO had dampened investor
interest, especially after Wednesday's weak debut by China United
Telecommunications Corp Ltd, another blue chip name, analysts said.
Chinese investors typically favour firms listing fewer than 100 million shares
as they are more volatile and likely to yield quick profits. Shanghai Air's IPO
consisted of 200 million shares.
Shanghai Airlines, 40.66 percent owned by the Shanghai government, operates on
136 routes, mainly in China's mainland but also to Macau, Cambodia, Vietnam and
Russia.
($1 - 8.277 yuan)
(with reporting by Lu Jianxin)
10/11/02 04:54 ET
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