If you ve been monitoring> the global recovery at all, you ve likely noticed the elephant in the room called China. Last year, though exports fell, the IPO market was the second most-active in the world, and GDP jumped 8.45%. Things are so robust, Beijing now is taking steps to prevent inflation and slow growth.
For the American investor who wants to bet on China, what is a good entry point? One option: newly-listed tech companies. Just be sure to do your due diligence, says Mark Tobin of Roth Capital Partners in Newport Beach, Calif. His firm helped raise about $700 million for U.S.-listed Chinese firms last year, mostly in the small-cap to micro-cap range.
In this case, due diligence means everything from checking out the legal and auditing teams that took the company public to making sure Securities and Exchange Commission filings like 10-Ks and 10-Qs reflect reality. And be prepared for surprises. It s a Communist country with a different way of looking at the world, says Debra Fiakas, managing director of Crystal Equity Research in New York. Companies are starting out from an entirely different base and should be valued accordingly, she says.
What s more, IPO investing is notoriously difficult. Some stocks see a quick boost from the publicity not to mention investment bankers pushing the issue only to wind up stagnant. Offerings can also price well below expected valuations and size of offering. With those caveats in mind, here are five companies, among those being tracked by China-watchers, all listed on Nasdaq.
IPO date: Aug. 5, 2005
What it debuted at: $27.00 a share
What it raised: $109 million
Where it is now: $541.46 a share
Baidu, a Beijing-based search engine business, has 60% market share in China. You might have heard of it in the publicity surrounding Google s dust-up with China earlier this year, when Baidu was mentioned as the biggest winner if Google did pull out of the country (so far, that hasn t happened). What makes Baidu so attractive is the state of the search engine business in China nascent and growing quickly. Last year, 289 million Chinese used the Internet, up 41.9% from 2008. Thats only about a third of the country s population. BIDU, which has close ties to China's central government, jumped 10% following a strong fourth-quarter earnings release in early February. And just last Friday, the company said it's set to pocket $50 million from an American private-equity firm to expand a video offshoot called www.qiyi.com.
IPO date: Feb. 16, 2008
What it debuted at: $1.82 a share
What it raised: $6.9 million
Where it is now: $5.41 a share
The growth in China s cities is opening up markets for companies that deal with mass transit control, management, public safety and urban planning. That makes China Information Security Technology, which provides digital security and geographic information, a company to watch. In just the fourth quarter of last year, China Information signed a record $36.7 million in new contracts. Its 2009 revenue spiked 18.4% year-over-year to $101 million, and the company expects a 40% growth in 2010.
IPO date: Nov. 16, 2009
What it debuted at: $9.00 a share
What it raised: $3 million
Where it is now: $12.00 a share
China Valves makes over 700 models of metal valves used by industries ranging from thermal power and water supply to oil and nuclear power. Given China s push to industrialize, China Valves is positioned to take advantage. For example, the company is supplying valves to the Chinas State Grid Corp., which is working on a $36.5 billion electricity grid expansion. Other projects where CVVT has won a piece of the pie: the $11 billion government reconstruction of the area affected by the 2008 Sichuan earthquake and a new government initiative to supply rural areas with appliances such as televisions, refrigerators and water heaters. Thousands of the items (all with valves) were sent to rural areas, where farmers could buy them and apply for a 13% government rebate.
IPO date: Jan. 7, 2007
What it debuted at: $15 a share
What it raised: $225 million
Where it is now: $4.96 a share
China is the world s leading manufacturer of photovoltaic panels, which turn sunlight into electricity, and JA Solar (JASO)
IPO date: July 13, 2009
What it debuted at: $9.10 a share
What it raised: $100,000
Where it is now: $22.64 a share
RINO, based in Dalian in Liaoning Province, produces environmental protection equipment for the steel and iron industry, and as such, is well-poised to capitalize on the massive infrastructure build-out taking place in China. For example, Beijing has not only set plans to increase sludge processing capacity to 30 million tons a year, it has set goals of having at least 60% of wastewater treated by the end of 2010. Rino has already nabbed a piece of the business, securing an $18.4 million clean-up contract in late 2009; it is expecting another $500 million one to come through by the end of 2010.