SHANGHAI Chongqing Water (601158.SS), which has a monopoly in the west-central region of China, soared on its debut, as investors shrugged off recent sluggish first-day performances to pile into a water industry that stands to gain from big government infrastructure spending.
Shares in state-owned Chongqing Water jumped 74 percent in Shanghai on Monday, well ahead of market predictions for a gain of around 25 percent, after the company had opted to keep the price of its $511 million IPO low given recent flagging interest in new offerings.
"People are just jumping into the stock," said Yuan Yuanzhang, analyst at GF Securities, noting the debut performance was much stronger than had been expected.
Chongqing Water, funded by the Chongqing Municipal People's government, is likely to benefit from state water infrastructure plans, with the Chongqing region a primary development focus.
Large parts of southern China are suffering a severe drought that has blighted the lives of millions. Yunnan province is in its worst dry-spell in nearly a century.
"Profit is relatively stable for the company," said Chen Hui at Guotai Securities in Shanghai. "Investors are also confident that future expansion will be successful after the success of its 2007 plans."
With China's water infrastructure still relatively undeveloped, Chongqing Water should continue to increase profits in the years ahead, said Hui.
Chongqing Water shares opened at 10.99 yuan and ran up to 12.17 yuan by the midsession, versus its IPO price of 6.98 yuan.
The broader market also rose, with the benchmark Shanghai Composite Index .SSEC up more than 2 percent at a 2-month high, as investors welcomed news of the imminent launch of stock index futures trading.
Analysts had expected Chongqing Water to rise on its debut given the sector's strong fundamentals, including a growing population and urbanization trends that are set to boost water consumption in China.
The strong first-day gain contrasted with lukewarm debuts last month by larger companies such as Huatai Securities (601688.SS) and China First Heavy Industries (601106.SS).
Chongqing Water, which is located by the Yangtze river, will use the IPO proceeds for new water projects, including sewage treatment, in the Chongqing and Three Gorges reservoir area.
The company's IPO price values it at 34.9 times its 2009 earnings, taking into account dilution by the additional share offering.
About a dozen water supply and environmental protection firms listed in Shanghai and Shenzhen have an average historical price earnings ratio of around 50 times, with major rival Tianjin Capital Environment Protection Group Co (600874.SS) valued at 45 times.
(Editing by Edmund Klamann and Ian Geoghegan)