With the ongoing fanfare on dual listing, it is timely to revisit these companies and evaluate their share performance since their date of announcement of their dual listing plans.

Further updates by the companies

Some of the more important news on the featured companies were tabulated before:

Besides these companies, Epure further added to the dual listing fervour by announcing that the company had appointed Morgan Stanley Asia Limited as the sole sponsor to the Proposed HK Listing and the sole global coordinator for the Global Offering on 7 Jan 2010 morning. As a result, Epure gapped up a whopping 9.7% on its opening on 7 Jan. It seems to be the “in” thing to spot the next candidate for dual listing. DBS Vickers followed with a report on 8 Jan and speculated that China Fishery, Pacific Andes, China Animal, Midas and Yangzijang to be the next candidates to do a dual listing. Except for Midas which had announced its intention in last Sep, the other companies have not revealed their intentions yet.

Is dual listing really a panacea to lackluster share price?

It is timely for us to review how the companies have performed since their announcement of dual listing. For the eight companies which I listed in Dec, I decided to remove Li Heng as its unique dual listing plan was rejected by SGX. I have also included China Kangda into the list as it was listed on both the SGX and Stock Exchange of Hong Kong Limited (HKSE) in 2008. For readers who are not familiar with China Kangda, it is a diversified food processing group based in the PRC and is primarily engaged in the processing, sales and distribution of (a) chilled and frozen meat products such as rabbit and chicken meat; (b) processed food products & (c) other products which mainly include pet foods.

Below is a table which clearly shows the share price performance and the changes in 30-day average volume since their date of announcement.

*For Epure, there is a “NA” under “Price on 8 Dec” as it has not announced its dual listing then. In addition, there is undoubtedly some overlap in the calculation for Epure 30D Ave Vol before and after announcement. This is because Epure just announced the dual listing about a week ago.

Based on the above table, dual listing seems to have a positive effect on the companies’ share price. Out of the nine companies, eight companies have an appreciation in their stock price, except for China Kangda which has announced profit warning for the previous three consecutive quarters.

Dual listing also seems to increase the liquidity of the majority of the counters. Notwithstanding China Kangda, China Taisan, Epure and Midas, the other six companies posted at least a two-fold increase in their liquidity.

Thus, from the above table, dual listing does not seem to benefit across the board in terms of share price and liquidity. Thus, what does a retail investor need to take note before he jumps onto a company which just announced dual listing plans?

What should shareholders take note?

Robust business fundamentals

First and foremost, the company should have robust business fundamentals. If not, it is unlikely to acquire a strong and sustainable support from institutional funds. As a result, even if the share price shows an upwards blip upon announcement of the dual listing intention, this appreciation is likely to be short term. Smart money is unlikely to stay in the counter for long if the company fundamentals are poor.

Increase business profile

By seeking a listing in the country where it has significant business presence, it increases the ease in targeting suppliers, customers and investors. This is because they are likely to take assurance from the knowledge that the company that they are dealing with, is a listed company on their stock exchange. However, this kind of benefit is likely to accrue over long term.

Potential dilution

Depending on the type of dual listing, companies may have to issue new shares which would result in earnings dilution. For example, Epure will be issuing up to 430m new shares which effectively results in a 33% dilution to earnings. It remains to be seen whether the capital raised from the issuance of new shares will be channeled to value added projects or purposes.

Valuation vs peers trading on the target stock exchange

If the company is already trading at near the valuation levels of its peers in another exchange (say HKSE), then by listing on HKSE may not increase its valuations further (unless it has sustainable competitive advantages relative to its peers).

Costs

There are several costs involved in doing a dual listing. Examples of such costs are legal costs, compliance costs and the potential opportunity costs as top management attention is diverted from their core businesses during the lengthy preparatory work for dual listing. These costs may have a significant impact to those companies with little profits.

Conclusion

In a nutshell, investors should weigh the pros and cons before jumping on the “buy the dual listing shares” bandwagon. Investors have to do their due diligence to pick out those companies whose business and valuation would improve by dual listing and these benefits should outweigh the costs involved in dual listing.

 

 

 

 

 

a lot of selling from Ferrell Premier Funds Limited, PCC Sub-Fund Ferrell Asia Fund