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Air China IPO Makes Solid HK Debut

Shares of Air China, the country's largest carrier, closed 8.2 percent higher after its first trading day in Hong Kong yesterday, a solid debut in line with market expectation.


Air China, the last of China's three large airline groups to go public, was one of the most active stocks in Hong Kong yesterday, partly helped by the market's continued strong liquidity and a gradual drop in oil prices.


Its shares finished at HK$3.225 yesterday after hitting an intraday high of HK$3.25, compared with the offering price of HK$2.98. The benchmark Hang Seng Index was up 0.25 percent at 14,078.54.


Analysts had expected shares of Air China would jump between 5 to 10 percent at their trading debut yesterday as investors were keen to capitalize on the mainland's economic growth.


"The listing enables us to expand our fleet, strengthen our position as one of China's largest commercial airlines and enhance the hub status that we enjoy at Beijing Capital International Airport," Air China President Ma Xulun said.


"One of our focuses will continue to be improving levels of services in order to maintain and strengthen our high-quality customer base as we seek to expand our route network," he added.


Air China has been regarded as a good buy, given that its price/earning ratio and return on investment is better than its peers, China Eastern Airlines and China Southern Airlines.


SHK Research analyst Gary Zhang, who expected the stock to hit HK$3.60 in a 12-month period, said that Air China's growth would be well supported by Beijing airport's strong passenger growth before the Olympic Games which will be held in 2008 in the capital city.


Air China sold 2.805 billion shares, or 31 percent of its enlarged equity, and raised approximately US$1.07 billion after pricing its IPO at HK$2.98 per share, the upper end of its indicated price range.


The offering price values Air China at about 10.9 times 2005 forward earnings, a discount to its mainland rivals. China Eastern Airlines and China Southern Airlines trade at 11.8 times and 14.9 times forward earnings, respectively.


Air China saw its retail portion of its IPO 83 times covered and the public portion was thus lifted to 40 percent of the offering from 10 percent. Other institutional investors were left with about 27.5 percent of the deal, and the remaining was earmarked for Hong Kong's dominant carrier Cathay Pacific Airways which agreed to buy 32.5 percent.


Recent corporate scandals among mainland companies such as a huge trading loss by China Aviation Oil (Singapore), and accounting fraud by Skyworth Digital did not put much of a dent in demand for Air China shares.


Air China is one of a spate of December listings worth up to a combined US$5 billion in a Hong Kong that is flush with cash.


(China Daily December 16, 2004)


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