Changing China

Giant on the move

The Other China Stimulus

August 27, 2009

By Zhou Xin

As the world watches how Beijing’s $585 billion stimulus package can create opportunities for investors, they might be overlooking another mini-stimulus that is coming in a matter of weeks: the lavish celebration the government will be staging to mark the 60th anniversary of the founding of the People’s Republic of China on Oct. 1.

On top of what is expected to be a huge military parade through central Beijing, massive firework displays are expected to light up the capital and other big cities around the country.

Although overall spending figures are secret, speculation about the windfall profits that the country’s only listed fireworks firm could reap from the event have caused its share price to, well, explode over the last month or so.

Panda Fireworks shares have more than doubled in value over the past month, even amid a more than 14 percent fall in the benchmark Shanghai Composite Index over the same period. (See the chart plotting their values and relative performance.)

The company, which had revenue last year of about 173 million yuan ($25 million) and profits of 13.6 million yuan, announced on Monday that it was “engaged in some bidding” that would add 5-10 million yuan to its profits this year.

Online chat rooms for retail investors went wild, with some participants saying they thought the share price could go as high as 45 yuan, even 95 yuan — compared with about 11.50 yuan a month ago and just over 23 now.

“It feels really good when your stock is surging while most others are falling,” said Shaq Wang, a Beijing investor who purchased the company’s shares in late July. “The only thing I regret now is that I did not invest more money into it.”

But analysts did not share his exuberance.

Zou Jianjun, an analyst with Fortune Securities in Hunan who visited Panda Fireworks in July, said a reasonable price for the company’s shares would be around 14-15 yuan, factoring in winning a big contract for the National Day fireworks.

“Yes, it supplied fireworks for the 2008 Beijing Olympics, and it is likely to win a big contract for the National Day celebrations,” she said. “But any price above 20 is certainly not a true reflection of the company’s value, according to my analysis.”

Photo credit: Residents watch fireworks to celebrate the Lantern Festival on a street in Wuhan, Hubei province February 9, 2009. REUTERS/Stringer

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