United Imaging shares soar 75% in Shanghai debut, China's 3rd-biggest IPO in 2022

© Reuters. FILE PHOTO: A gong is pictured before the listing ceremony of the first batch of companies on STAR Market, China's new Nasdaq-style tech board, at Shanghai Stock Exchange (SSE) in Shanghai, China July 22, 2019. REUTERS/Stringer

SHANGHAI (Reuters) - United Imaging Healthcare Co's shares surged as much as 75% in their Shanghai debut on Monday following the Chinese firm's $1.6 billion initial public offering (IPO), the biggest on China's tech-focused STAR Market so far this year.

The jump came after strong demand during the share sale, the third-largest IPO in China this year, as investors pinpointed the diagnostic imaging device manufacturer as a safe haven amid gloomy prospects for growth in the country, analysts said.

Shares in the company, the biggest domestic player in its field, opened 55% higher at 170.1 yuan and at the midday trading break the shares were up 66% at 182.6 yuan.

Yang Hongxun, analyst at investment consultancy Shandong Shenguang, said the surge was fuelled by both the company's fundamentals and ample market liquidity - big offerings have flourished in China with total fundraising topping global ranks in the first half.

"The market is not in shortage of liquidity, and sentiment is improving," Yang said.

Stepping up moves to bolster its slowing economy, China on Monday cut its benchmark lending rate, following easing measures introduced last week, lifting the main benchmark 0.8%.

In addition, Yang said, United Imaging "will also be a must-buy for institutions" given its leading position in its sector, "the role in China's strategy of domestic replacement of foreign technologies ... and the prospect of being included in major indexes."

United Imaging sold 100 million shares at 109.88 yuan apiece, raising 10.99 billion yuan ($1.62 billion) this month, after the offer was oversubscribed more than 3,500 times among retail investors.

HOMEGROWN LEADER

The medical technology company, which competes with healthcare divisions of General Electric (NYSE:GE) Co, Siemens AG (OTC:SIEGY) and Philips NV, has seen demand for its scanning and imaging devices benefit from coronavirus outbreaks in China.

Proceeds from the public offering, China's third-largest IPO so far this year according to Reuters' calculations, will be used to fund research and development, production and marketing, it said in the IPO prospectus.

The stock was priced at 78 times earnings in the sale, more than double the industry's average multiple of 35. It will trade with no price limit in the first five sessions, while fluctuations will be capped within a range of 20% thereafter.

CITIC Securities and China International Capital Corporation (CICC) were joint sponsors for the IPO. Haitong Securities acted as the joint underwriter.

Domestic brokerages said prospects for United Imaging going forward were good.

As China's homegrown leader in diagnostic imaging devices, Industrial Securities said United Imaging would benefit from localisation in the sector to compete with overseas peers, boosted by favourable government policies.

Meanwhile Sinolink Securities initiated its coverage of the stock with a 'buy' rating and a price target at 140.3 yuan, well below its Monday trading levels.

However, United Imaging cautioned revenue growth from imaging devices might slow in the future, given less demand due to progress in COVID-19 testing methods, vaccines and drugs.

The industry could also be vulnerable to potential government price curbs under President Xi Jinping's 'Common Prosperity' drive, analysts say.

"If more cities or the central government introduces centralised procurement policy for large healthcare equipment, the company might face more pressure to lower prices," said Industrial Securities in a note.