Saturday, January 20, 2007

Request: China Energy

Extremely impressive performance since IPO. Offered at $0.83 a share, and currently trading at $1.210.

I did look at this IPO initially, but I decided against applying for it. Yes, you might say I've just missed the boat, and i'm stupid. But in my experience and analysis, it could have gone both ways. Here is why.
A look at the prospectus. Skip all the tall stories. Jump straight to the financial statement. China Energy had problem keeping profitable since 2003. On top of that, given the sudden jump in 2005 and impressive 1H earnings that exceeded all of the last 3 years combined, I would have given some time for the company to prove itself.

What were the problems China Energy any had when they were losing money? Why the sudden rise?

"I'll only invest in companies with 3 years of proven earnings growth"

A quick look at IPOs last year that had the above condition. Sino-Env. China Fishery. Really. Just take a quick look. Look at their prospectus (financial statement part). Look at where they started trading. Look at where they are now. Will China Energy perform as well as these shares? I don't think so.

Current price hike is caused by too forward looking expectations. It will be very badly hit when the correction comes.

Maybe i'll consider China Energy after its FY2006 report.

0 comments: