Caixin
Sep 04, 2020 04:47 AM
FINANCE

Livestock Breeder’s 9-Day Stock Surge Spurs Hype Warning From Regulator

Investors stand at trading terminals in front of electronic stock boards at a securities brokerage in Shanghai
Investors stand at trading terminals in front of electronic stock boards at a securities brokerage in Shanghai

A money-losing Xinjiang-based livestock breeder became the darling of small investors on China’s newly restructured ChiNext tech board in Shenzhen, fueling a nearly 300% price surge over nine trading days while eliciting a warning from regulators against excessive speculation.

Xinjiang Tianshan Animal Husbandry Bio-Engineering Co. Ltd., which develops cattle breeding and genetic improvements, closed trading Thursday about 20 minutes ahead of the closing bell after its stock rose by the 20% daily limit. It was the ninth straight day for the small-cap stock to hit the daily limit, with the share price surging 286% from about 6 yuan to 23.16 yuan ($0.88–$3.39) as of Thursday.

The unusual stock surge prompted the Shenzhen bourse regulator to sound a warning alarm (link in Chinese) Thursday night, calling on investors to beware of risks and to trade rationally.

The trading frenzy in Tianshan Animal partly reflects market mania ignited by rule changes in July on the ChiNext board in China’s latest market overhaul. On Aug. 24, the board allowed the first batch of 18 companies to debut under a new registration-based initial public offering mechanism, which replaced the previous approval-based system. The board also eased restrictions on stocks’ daily trading limits, making it similar to the year-old STAR Market in Shanghai.

In addition to the new listings, cheaper ChiNext stocks like Tianshan Animal have lured investors betting on the reform-fueled market boom despite the stocks’ poor business performance, analysts said.

The Tianshan Animal surge has been mainly driven by individual investors seeking a quick return, according to the Shenzhen Stock Exchange. Between Aug. 24 and Sept. 3, a total of 274 million of the company’s shares were traded with transaction values totaling 4.15 billion yuan. More than 90% of the buyers were individual investors, data from the exchange showed. Small retail investors — those with less than 3 million yuan of stock in their accounts — were responsible for 68.5% of the trading in Tianshan Animal during the period.

The exchange regulator ordered the company to halt trading Aug. 28 for a review of the share price moves, but that didn’t stop the stock from continuing to soar.

Hot money has turned to the ChiNext board amid recent fluctuations on the main boards, pushing up transactions on ChiNext, said Zhang Zihua, chairman of investment company Yunyi Asset. Several brokerages including Ping An Securities and China Galaxy Securities in recent research notes warned of investment risks related to surging small cap stocks.

The 18 companies that debuted Aug. 24 booked an average 212% gain on their first trading day. More than 300 companies have queued up for listing on the ChiNext board under the new rules.

Investors’ enthusiasm for Tianshan Animal also reflects a recent rise in beef prices. Official data showed that the wholesale price of beef has increased more than 3% since mid-June.

On Aug. 27, Tianshan Animal said its cattle breeding unit, Tongliao Tianshan Husbandry Co., plans to set up a new subsidiary to expand capacity. The news further boosted the share price. However, Tongliao Tianshan, established in May, has yet to deliver any product to the market with 596 cows in inventory as of Aug. 26. The establishment of the new subsidiary is still in an early stage of discussion.

Listed in 2012, Tianshan Animal has booked a combined 2.1 billion yuan loss during the past eight years. In the first half 2020, Tianshan Animal reported a net loss of 7.6 million yuan, 41% more than in the same period last year. The company’s 2019 net loss totaled 60.8 million yuan.

The Shenzhen exchange said it has Tianshan Animal under special monitoring and warned investors that the company could be exposed to risks due to a higher-than-average price-earnings ratio that lacks support from business fundamentals.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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