Shares of Chinese herbal shampoo maker BaWang International Group Holding Ltd tumbled in Hong Kong on Wednesday following a local media report alleging that its products contained a cancer-causing chemical.

Samples of BaWang's anti-hair-loss formula shampoo and its Royal Wind brand were found to contain the cancer-causing substance dioxane, Hong Kong-based Next Magazine reported, citing test results by Swiss inspection and analysis company SGS.

Shares of the Hong Kong-listed company immediately fell as much as 18 percent and the stock was later suspended from trading.

"If it is confirmed to be true, this would probably have an immediate impact on the sales of all BaWang's products and would impair the brand image and delay the launch of other products this year," said Raymond Ching, an analyst at Bank of America Corp Merrill Lynch in a research note.

The magazine said SGS was commissioned by a Hong Kong resident to conduct a test on six shampoo brands, including Rejoice, O'Naomi, Watson's and BaWang.

BaWang later responded in a statement obtained by Reuters that all of its products had undergone stringent quality tests and met the standards required by the mainland and Hong Kong authorities.

It said its products also complied with safety requirements prescribed by the US Food and Drug Administration and "the level of dioxane is far below the world safety guidance and will not jeopardize health".

"Generally, dioxane can be seen as the byproduct of the raw materials to produce the shampoo, and virtually manufacturers can avoid the generation of the chemical ingredient," said BaWang.

Founded in 1989, the Guangzhou-based shampoo maker saw its business surge after its initial public offering in Hong Kong in 2009, which helped it raised $215 million. The company also hired movie star Jackie Chan and pop singer Faye Wong to promote its products.

Sales of BaWang's shampoos rose 20 percent from January to May, the company said. Royal Wind shampoo, which targets female customers, is on track to deliver its sales target of more than 500 million yuan ($73.5 million) this year, compared with 293 million yuan in revenue last year, the company said.

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