BBMG surges in Hong Kong debut on China's stimulus

Byswb

Updated Wed, 29 Jul 2009 00:00:00 GMT

BBMG Corp., Beijing's biggest cement supplier, surged on its first day of trading in Hong Kong on expectations China's $586 billion stimulus spending will spur asset investments and housing demand.

BBMG soared as much as 65 percent to HK$10.50 from the offer price of HK$6.38 at the 12:30 p.m. local time break, as retail investors in Hong Kong applied for about 775 times the stock available in the city's second-biggest offering this year. The company raised HK$5.95 billion ($767 million).

China's urban fixed-asset investment soared 34 percent in the first half, the most in five years, and Beijing yesterday unveiled plans for a financial district funded by 60 billion yuan ($8.8 billion) of debt. Public works spending helped lifted second-quarter economic growth to 7.9 percent, as China became the first major economy to recover from a global recession.

"Things are looking good for BBMG because the government is going to be spending more for infrastructure and the property market in China is rebounding," Carmen Wong, an analyst at Phillip Securities Group, said in Hong Kong. The gain today has overpriced the stock, said Wong, who has a 12-month target price of HK$8.23.

BBMG, which also develops and own properties in the Chinese capital, is valued at about 22 times forecast earnings based on Wong’s estimates. Anhui Conch Cement Co., China's largest maker of the construction material, trades at 25.63 times estimated earnings in Hong Kong, according to data compiled by Bloomberg.

Olympics Supplier

China State Construction Engineering Corp., the nation's biggest homebuilder, jumped 90 percent today on its debut in Shanghai as confidence in the economic recovery stoked demand for the world’s largest offering in 16 months.

BBMG, which supplied more than 90 percent of the building material used in the National Stadium and the National Aquatics Center for the Olympics, recorded a profit of 1.32 billion yuan last year, more than doubling from 2007.

"The deal highlights the current strength of the local capital markets," Raymond Li, a partner at Paul, Hastings, Janofksy & Walker, said today in an e-mailed statement. The law firm represented BBMG in the offering. JPMorgan Chase & Co., Macquarie Group Ltd. and UBS AG arranged the share sale.

China's urban home prices rose for the first time in seven months in June, the National Development and Reform Commission said July 10.

More Cement Demand

Anhui Conch said in April sales volumes jumped 15 percent in the first quarter from a year earlier, and forecast that prices may rise 10 percent in the second quarter from the previous three months. Demand may expand 10 percent in the second half because of rising fixed-asset investment, it said at the time.

"Cement prices are expected to rise in the fourth quarter as demand for housing and infrastructure projects in China increases demand for the material," said Michelle Leung, an analyst at CIMB-GK Securities (HK) Ltd. She has an "overweight" rating on the industry.

China Investment Corp., the country's $200 billion sovereign fund, and four other investors including U.S. hedge fund OZ Management LP and China Life Insurance (Group) Co. bought $175 million worth of shares, according to BBMG's prospectus.

BBMG and associated company Taihang Cement focus on the cement markets in Beijing, Tianjin city and Hebei province in northern China, according to its prospectus.