IPO-VIEW-Chinese IPOs soar in US, signs of a bubble?

NEW YORK Oct 19 (Reuters) - Chinese companies flocking to the United States for new listings are drawing widespread interest, but some analysts warn the stocks are being too richly valued by overly keen investors.

On Friday, shares of Noah Educational Holdings Inc (NED.N), a provider of interactive educational materials, rose more than 40 percent on the New York Stock Exchange, a day after its initial public offering priced above a forecast range.

The strong gains came even as Shanghai's benchmark stock index .SSEC fell 0.1 percent because of worries about tightening monetary policy and high valuations.

Noah's offering continues the boom in new Chinese issues. Two more are expected next week.

Investors have been attracted by prospects for sustaining already strong revenue growth thanks to China's large emerging middle class.

"China is the fastest growing economy on earth, it has a very rapidly developing middle class who are the consumers of the products these companies provide," said Ben Holmes, publisher of Morningnotes.com, an independent research company.

Noah, along with China Digital TV Holdings (STV.N) and China Life Insurance Co (LFC.N) -- two Chinese IPOs that have surged since their debuts -- are prospering from China's shift toward a consumer-driven nation, Holmes added.

Noah has developed a line of digitally-based education products to complement China's public primary and secondary school curriculums.

BUBBLE?

Noah Executive Vice President Rick Chen said the company expects "significant" growth in both revenue and net income over the next few years.

The company's target audience, 5- to 19-year-old students, gives it a large base of nearly 300 million potential users, according to the China Statistical Yearbook.

Although many Chinese companies have pursued either domestic or Hong Kong offerings, Chen said a listing on the NYSE gave it wider access to investors, needed to support its long-term growth.

"U.S. investors understand our story, and we believe the New York Stock Exchange is one of the most prestigious exchanges in the world, and with the best liquidity," Chen told Reuters.

Year-to-date, 17 Chinese companies have staged U.S. IPOs, raising $3.4 billion, or more than five times that of Chinese listings during the same period last year, when 3 IPOs raised $550 million, according to data tracker Dealogic.

On the whole, the plunge into these stocks has been a good bet, averaging returns of about 65 percent since their offerings.

"The Chinese have a lot of liquidity and nowhere to go," said Benjamin Wey, president of New York Global Group, an investment and consulting firm that specializes in China.

"The party is just beginning," he said, of Chinese offerings in the United States, with less than 100 Chinese firms having so far launched IPOs on major U.S. exchanges. "All of these companies have something in common -- strong revenue and earnings growth."

Other analysts are more cautious.

"It is very much like our market in 1999, 2000. It is a bubble market and when it ends it will be swift and violent," Holmes said. "In the meantime people are trying to make money hand over fist."

"Nobody is saying at the current levels these companies are screaming bargain," said University of Florida finance professor Jay Ritter. He added that domestic Chinese stocks are trading as high as 60 times a company's earnings, and U.S.-listed Chinese stocks are not far behind in valuation.

"The high price to earnings ratios are really hard to justify, and the mistake investors make is confusing growth in the Chinese economy with growth in earnings per share of Chinese publicly traded companies."

Ritter said generally strong economic growth does not boost company growth. "Historically over the last century there has been a negative relationship between the per-capita income growth in a country and stock returns."

Six Chinese companies currently await in the U.S. IPO pipeline, and two are slated to launch next week.

On Monday, Fuqi International Inc, a designer of precious metal jewelry, is expected to raise up to $58 million with an initial public offering.

Morningnotes.com's Holmes said investor interest may be lukewarm given the small size of Fuqi's offering, and because it is not represented by one of the large Wall Street investment banks.

But an IPO by China's Longtop Financial Technologies Ltd, which provides technological services to China's burgeoning financial sector, looks set to tap into enthusiasm for new Chinese stocks.

Longtop, represented by Goldman Sachs (GS.N), plans to raise up to $146 million, and list on the NYSE. Like other recent Chinese IPOs that have done well in the United States, Longtop has seen healthy revenue expansion.

For the year ended December 31, 2006, it had revenue of $42.6 million, up from $25 million a year earlier. But net income slipped to $8.3 million in 2006 from $12.5 million in 2005.

While Holmes said the old maxim "what goes up, must come down" is true here, new Chinese issues will continue to do well as long as the market holds up.

"(Chinese companies) are able to harness our capital markets while we are able to harness the growth in their consumers," he said. "It works both ways."