Share Price Falls Below RMB 100

Last Friday, the company's stock price closed below RMB 100, as did the entire market.

When the Shanghai Composite Index hit its record high of 6124, the company's stock price was as high as RMB 185. Later on, when the index was starting to go bearish, the company's stock was still on its upward trend, peaking at RMB 230 per share.

Statistics show that in the first 192 trading sessions of 2008, the turnover rate of the company's stock was 60%, of which 0.3% changed hands daily, reflecting institutional investor confidence. However, in October 2008, the stock price fell as much as 25.78%, more than the 15.83% decline in the Shanghai Composite Index.

The company's 2008 Semiannual Report shows that, as of 30 Jun 2008, 175 investment funds hold RMB 243 mln company shares, equal to a 53.47% stake. Massive holdings of investment funds have resulted in less active transactions in the company's stock. On the other hand, if one investment fund sells its holding, it could induce a dramatic plunge in the company's stock price. As of 30 Jun 2008, the company's share price has fallen RMB 40.69 to RMB 97.89 from RMB 138.58 earlier.

Analysts pointed out that there are two major causes leading to the slump of the company's stock price. First, its 20 P/E ratio is higher than the average 15 P/E ratio in the markets. Second, investors worry that the high price cannot be sustained by mere growth.

The real economy is likely to tank in the midst of the credit crunch, which will restrain spending. That, in turn, will negatively impact the company's growth as it deals in luxury items.

The falling of the company's stock price is a lesson for investment fund over-speculation.


Source: Securities Times

Date: 20 Oct 2008

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