breaking tide
beating new people is a little miserable. Whose “pot”
Since this year, the breaking of new shares has gradually become the norm, especially the new shares on the science and innovation board, which fell by 20% and 30% on the first day, and the risk of playing new shares is becoming higher and higher. Under the background of the recent downturn in the registration market, many people in the industry said that the continuous promotion of new shares will become the norm.
multiple factors lead to the breaking of new shares
As of April 22, wind data showed that 114 A-shares were newly listed this year, and 32 were broken on the first day, mainly focusing on the science and innovation board and gem that implement the registration system. In April, new shares broke a record frequently. At present, there are 28 listed stocks in April and 13 on the first day. Among the A-share new shares that fell below the issue price on the first day of listing, the number of new shares in computer, communication and other electronic equipment manufacturing and pharmaceutical manufacturing sectors was the largest, with 9 and 6 respectively.
Sun Jinju, assistant to the president of Kaiyuan securities and director of the Research Institute, said that first, the overall market environment is poor. Affected by the repeated epidemic and the turbulent situation in Russia and Ukraine, the A-share market has fluctuated downward since March; Second, the pricing of new shares is relatively high. Among the broken new shares, except Junxin shares and softcom power, the initial P / E ratio is significantly higher than the industry average; Third, some companies have poor profitability or have low expectations in terms of fundamentals during the listing process. The proportion of unprofitable companies in breaking new shares is relatively high, among which Weijie Chuangxin, Haichuang pharmaceutical, Puyuan Jingdian, Shouyao holding and Geling Shentong are unprofitable companies.
Wu Kaida, deputy director and chief strategic analyst of Debang securities, said that after the introduction of the new inquiry rules in September last year, there were significant changes in the issuance and pricing rules of new shares. Under the original rules, the 10% high price exclusion ratio and the lower of the four pricing numbers require multiple announcements, making the pricing of new shares a “buyer’s market”. Investors participating in offline inquiry tend to hold down the price in order to win the shortlist of inquiry and earn the primary and secondary price difference, supporting the higher first day increase of new shares. After the implementation of the new rules, the pricing power of investment banks was improved, which greatly improved the pricing center of new share issuance, and the hidden breaking risk of new shares began to be exposed. Secondly, recently, due to the global central bank’s interest rate hike cycle and external pressure such as Russia Ukraine dispute, the A-share market environment is depressed, and the low risk preference of investors will also affect the breaking of new shares.
Chen Mengjie, chief strategist of YueKai securities, said that in the short term, the downward pressure on the economy will further increase, the lack of confidence of all parties in the market and the weak performance of the stock market are the most direct reasons for the frequent breaking of new shares recently. However, further excavation shows that the market pricing is high, and there is still pricing dislocation in the primary and secondary markets. The pricing of the primary market can not be recognized by investors in the secondary market. “Too expensive” is the fundamental reason for the frequent breaking of new shares. After all, great companies also need enough safety margin.
Wu Xiyan, fund manager of the equity investment department of Pengyang fund, said that the valuation of the secondary market continued to decline in 2022, but the valuation of new share issuance was much higher than that in the previous two years, resulting in more and more breaks and affecting the participation enthusiasm of investors.
The person in charge of investment and research of a head fund company in Shenzhen said that the market has paid high attention to new shares recently, mainly due to the frequent breaking of new shares on the first day of listing. On the whole, on the one hand, the recent A-share market has been affected by multiple factors such as fundamentals, capital and sentiment, and the overall volatility is large. In the downward stage of risk appetite, investors’ enthusiasm to participate in new share investment has also been restrained. On the other hand, after the issuance of the new inquiry rules in September last year, the P / E ratio of new share issuance was significantly higher than that before the new rules, and the higher issuance valuation also increased the breaking risk to a certain extent.
Fang Lei, chief research officer and deputy general manager of Xingshi investment, also believes that the recent frequent breaking of new shares is mainly concentrated in the science and innovation board. The direct reason may be that the issuing P / E ratio is too high and higher than the normal P / E ratio of the same industry.
An investment banker in Beijing said that the main reason for the breaking of new shares was the market downturn. He mentioned that in the process of institutional roadshow inquiry, the lead underwriter and the listed company agreed on an inquiry range according to the total fund-raising, industry dynamic P / E ratio, profit forecast and other comprehensive factors, and the inquired institutional investors made quotations in this range. However, in September last year, the regulatory authorities implemented new rules for inquiry of new shares to improve the trend of “holding together to lower the price” of institutions. Under the new rules for inquiry of new shares, after the issuance price was obviously raised, it encountered the continuous downturn of the market. Many white horse stocks have been cut. Investors would rather pick up cheap old stock chips than make new ones and undertake new stock chips with high valuation, which led to the abandonment of many investors.
new shares are broken or will be normalized
In addition to the factors of the recent market downturn, in the view of many people in the industry, with the comprehensive promotion of the registration system, the A-share market is becoming more and more mature, the breaking of new shares may become the norm, and the over raising situation is expected to be alleviated.
Sun Jinju, assistant president of Kaiyuan securities and director of the Research Institute, said that from the development experience of mature capital markets, breaking has become a normal phenomenon. At present, the first day breaking rate of China concept shares listed in the United States is as high as 40%, and the first day breaking rate of new shares listed in Hong Kong, China is also about 18%, and it has reached 47.8% in the past 21 years. In the future, with the gradual promotion of the new inquiry system, the pricing of new shares will become more market-oriented. New shares with high pricing and poor profitability will still face great breaking risk, and breaking may become the norm of China’s A-share market. However, we believe that the IPO market itself has the ability of pricing adjustment, and the continuous large-scale break will not appear.
Wu Kaida, deputy director and chief strategic analyst of Debang securities, said that the subscription of new shares still has value, and the normalization of breaking issuance is a normal phenomenon of market-oriented pricing of registration system. In the long run, it is normal to break frequently in more mature stock markets such as U.S. stocks and Hong Kong stocks. As the largest initial financing market in the world, many well-known enterprises such as Zhihu, station B and Moderna have experienced breaking on the first day. From a micro perspective, the pricing information of new shares in the primary market is still insufficient, which fails to reflect the adverse expectations of the fundamentals of the company’s industry. In addition, from a macro perspective, the overall market liquidity, sentiment and other factors will also have a great impact on the IPO market.
The person in charge of investment and research of a head fund company in Shenzhen said that with the frequent occurrence of “unbeaten new shares” to breaking, it can be observed that the enthusiasm and number of participants in the new share market have indeed declined. It can be expected that the institutions that participate in the quotation will be more rational and the pricing of new shares will return to its basic value.
Chen Mengjie, chief strategic analyst of YueKai securities, said that at present, the gem, the science and innovation board and the Beijing stock exchange have implemented the registration system, and the reform of the comprehensive registration system has been continuously promoted. It adopts a market-oriented pricing mechanism. The normalization of the breaking of new shares is a normal phenomenon under this background. It is expected that the subsequent breaking of new shares will become a “new normal”. At present, the market performance is weak, the confidence of all parties is insufficient, and the IPO mechanism needs to be further optimized. Referring to the history of overseas capital market, the breaking rate under the registration system is not low, and there will be periodic fluctuations. We should treat the breaking phenomenon objectively and rationally and establish a correct investment concept.
China Merchants Securities Co.Ltd(600999) research and consulting department high-end equipment industry researcher Li Xuan believes that the breaking phenomenon should be treated rationally. Referring to the more mature overseas capital markets, due to the existence of market-oriented inquiry mechanism, the subscription of new shares should be no different from the direct purchase of shares in the secondary market. The stock price trend after the listing of new shares is affected by many factors. The maturity of China’s capital market is relatively low. The pricing and trading mechanism of new shares makes there is a high risk-free return after the listing of new shares, but this itself is an unreasonable phenomenon. At present, the frequent breaking of short-term new shares has the impact of the market environment. With the recovery of market risk preference, the breaking rate may be repaired to a certain extent; But in the long run, with the gradual improvement of the system, the breaking rate should be gradually increased, and the benefits and risks will always coexist.
brokers “fishing for gold” in the left hand and “bleeding” in the right hand
Recently, the “new myth” is no longer, the wave of breaking new shares and abandoning purchase is becoming stronger and stronger, and the number of new players is also declining. Behind this phenomenon, the main underwriters of new shares are suffering, while investors are tucking up their new shares to earn their underwriting fees, pushing up the pricing of new shares, while underwriting all the new shares they have been discarded, and make complaints about the losses arising from the breaking up of new shares.
securities firms and investment banks are really the culprits of pushing up pricing
On April 21, Fang Xinghai, vice chairman of the CSRC, said at the sub forum of the Boao Forum for Asia 2022 annual meeting that some IPOs have recently fallen below the issuance price, not that there are too many IPOs, but that the pricing power should be further improved.
So how exactly are new shares priced? The reporter learned from an interview with a number of investment bankers that first, the lead underwriter discussed an inquiry range with the issuer according to the total fund-raising amount of the company to be listed and the P / E ratio of the industry in which the company is located. Then, determine the final issue price according to the quotation of institutional investors in the three roadshows of listed companies. Therefore, the total fund-raising amount of the issuer and the inquiry mechanism of new shares have become the key factors affecting the pricing of new shares. After entering the inquiry stage, securities companies have little say in pricing.
In September 2021, in order to solve the problem of “institutions holding down the quotation”, the regulator revised the inquiry system. Many people in securities business interviewed believed that the new rules on market-oriented inquiry solved the problem of “insufficient raising” before, but at the same time, the new rules also caused the problem of high pricing.
According to the new regulations on inquiry, the exclusion ratio of high prices was adjusted from “no less than 10%” to “no more than 3% and no less than 1%”. At the same time, the demand for delayed issuance when the pricing of new shares exceeded the “lower of the four values” was also cancelled. Therefore, after the implementation of the new inquiry rules, there have been many phenomena that the placing objects that are not shortlisted at low prices are more than those that are eliminated at high prices, which also directly leads to the high quotation, which is also an important reason for the breaking phenomenon later, Chen Mengjie, chief strategic analyst of YueKai securities, told reporters.
However, it cannot be denied that the investment banking department of securities companies collects underwriting fees according to the total amount of fund-raising. The larger the scale of fund-raising, the higher the underwriting fees. Take the recent “abandoning the purchase king” nasion micro as an example. As the “fund-raising king” this year, it raised more than 5 billion yuan, and as a sponsor (lead underwriter) Everbright Securities Company Limited(601788) received 203 million yuan of sponsorship and underwriting fee.
high frequency and high value abandonment
securities companies face great financial pressure
Although the investment bank of securities companies is not a decisive factor in the pricing process, it does not prevent the recommendation business of securities companies from making a lot of money. On the other hand, the underwriting of follow-up investment and underwriting departments of alternative subsidiaries of securities companies are under pressure.
Still take Everbright Securities Company Limited(601788) as an example. Due to the abandonment ratio of nearly 40% of the shares purchased by NSM, Everbright Securities Company Limited(601788) had to underwrite the abandoned shares at its own expense of 780 million yuan. Coupled with the strategic placement of its subsidiary Everbright fuzun of 116 million yuan, this means that Everbright Securities Company Limited(601788) will spend 900 million yuan for this project alone. In addition, Chengda pharmaceutical, which was listed at the beginning of this year, Everbright Securities Company Limited(601788) also underwritten more than 28 million yuan.
According to the annual report, in 2021, Everbright Securities Company Limited(601788) achieved a lead underwriting income of 640 million yuan. Among them, the IPO realized an initial revenue of 595 million yuan. Overall, in 2021, Everbright Securities Company Limited(601788) achieved an operating revenue of 16.707 billion yuan and a net profit attributable to shareholders of the parent company of 3.484 billion yuan.
Therefore, the cash flow occupation of nearly 900 million yuan is not a small amount for Everbright Securities Company Limited(601788) it. This phenomenon is more obvious for securities companies with more new shares listed this year. According to incomplete statistics by the reporter, as of April 21, 19 new shares of Citic Securities Company Limited(600030) have been listed this year, 14 new shares of Guotai Junan Securities Co.Ltd(601211) and 12 new shares of China Securities Co.Ltd(601066) and China International Capital Corporation Limited(601995) have been listed respectively.
Guoyuan Securities Company Limited(000728) frankly, since the beginning of this year, about 60 companies on the scientific innovation board and the growth enterprise board have broken off on the first day of listing, and many leading securities companies have also suffered heavy losses Guoyuan Securities Company Limited(000728) alternative subsidiary Guoyuan innovation has invested a number of shares on the science and innovation board, which are still in a good profit state as a whole. However, due to the long follow-up lock period (24 months), the stock price fluctuates greatly, which also has a great negative impact on the performance of its alternative subsidiaries.
Although the abandonment of higher investors will bring greater financial pressure to securities companies, the person in charge of Sinolink Securities Co.Ltd(600109) investment banking believes that it is only a phased excessive phenomenon.
In the opinion of the person in charge, the fully market-oriented inquiry mechanism for new shares is bound to lead to a dynamic game between investors, such as high price Bo shortlisting and breaking losses after listing. This dynamic game will bring certain periodic fluctuations. When the new income is rich, investors choose high price Bo shortlisting to push up the issue price and reduce the new income; When investors make a new offer, or even reduce the new profit, or even push the new profit down. This phenomenon is more obvious in the stage when new investors pay more attention to new short-term returns. In some mature overseas capital markets, similar cyclical fluctuations will occur in the inquiry and pricing of new shares.
industry calls for improving the voice of securities companies in pricing
In the view of many securities firms and investment bankers, although the pricing of new shares is generated in the inquiry process of market investors, the final pricing is still completed under the joint consultation of the issuer and the lead underwriter. Securities companies should still strengthen their pricing and underwriting ability, carefully examine the reasons for the current situation, and how to stabilize the pricing of IPO new shares through their professional pricing ability and underwriting ability when the market fluctuates, so as to protect the interests of investors.
Some insiders said frankly that the pricing power of securities companies and investment banks is more the ability to communicate with institutional customers. If the investment banking department can have a very good communication mechanism with the institution, influence the institution, truly follow the market when pricing, and do not sell when the market is weak, it can effectively avoid breaking. This has very high requirements for the resource control ability of the sponsor and underwriting team of securities investment banks. If we can improve the voice of securities investment banks in the inquiry stage, we can effectively avoid the phenomenon of large-scale breaking.
Wu Kaida, deputy director of Debang securities, believes that in the long run, there is still room for optimization of the placement system at the issue level. For example, strengthen the right to negotiate the price of underwriting, implement discriminatory distribution, compensate in quantity, and the inquiry object providing real information is the incentive mechanism of the mature market.
But in essence, to adapt the system to the market environment, we still need a more mature market as the basis.
Sun Jinju, assistant president of Kaiyuan securities and director of the Research Institute, also expressed a similar view. He believes that the reduction of the high rejection ratio under the new inquiry rules also led to the adoption of the high price strategy by some accounts for the shortlist of Bo, which has maintained the pricing of new shares at a high level after the new rules, resulting in the frequent breaking of new shares to a certain extent. In the future, if the high rejection ratio can be further improved, the current new share pricing mechanism will be further optimized to make the new share pricing become a balanced price that can not only reflect the internal value of the company, but also be fully accepted by the market.
has become a technical job
securities companies: treat the subscription of new shares rationally and make new ones selectively
The arrival of the breaking tide of new shares has broken the myth of “unbeaten new shares”, and the abandonment rate of investors is also rising. In this regard, securities companies said that investors should treat the subscription of new shares rationally. They should abandon the mindless thinking and turn to cautious subscription, and try not to abandon the purchase. It is worth noting that the breaking tide also forces institutional pricing to become more reasonable, and institutional investors’ participation in innovation will gradually change from the previous strategy of “fighting every new” to “selecting individual stocks”.
new share repurchasing wave hits
In this wave of new shares, many successful investors began to abandon their purchases. In this regard, the person in charge of investment and research of a head fund company in Shenzhen believes that this is a normal phenomenon. The money loss effect is significant, and investors begin to become cautious.
Fang Lei, chief research officer and deputy general manager of Xingshi investment, told reporters that due to the good risk-free return of playing new in the past, investors rarely abandoned their purchase after playing new, and some investors continued to play new online blindly. However, at present, the overall profit-making effect of the stock market is significantly lower than that in the past two years. The phenomenon of superposition and breaking occurs frequently, and it is understandable for investors to abandon their purchases. According to his analysis, both the abandonment of investors and the breaking of new shares are normal market phenomena, which may be a sign that investors are becoming more and more rational, and help to enhance the price discovery function of the secondary market. Looking back, the price difference between the primary and secondary markets may gradually return to a more reasonable level, and the stock market structure may be adjusted to a more reasonable level.
Sun Jinju, assistant president of Kaiyuan securities and director of the Research Institute, said that the recent frequent breaking of new shares has led to a significant decline in investors’ new income. At the same time, the decline in new revenue has also led to a significant cooling of investors’ enthusiasm to participate in new innovation. At present, the number of offline new accounts on the science and innovation board and the gem has dropped to less than 10000, and the abandonment of individual investors has begun to become the norm.
However, abandoning the purchase of new shares requires caution. Recently, some securities companies have recently frozen funds in advance, causing controversy. According to the subscription rules, after winning the lottery, online investors shall fulfill their payment obligations to ensure that their capital account will eventually have sufficient new share subscription funds on T + 2 day. However, recently, some securities companies frozen the account funds of investors on T + 1, and many investors paid passively.
In this regard, Wu Kaida, deputy director of Debang securities, pointed out that the withdrawal of successful investors does have a certain impact and hindrance on the issuance of new shares, but securities companies do not have the legal right to force successful investors to pay for subscription. He further analyzed that the regulators encouraged the successful online investors to pay and purchase on time, but at present, the online investors have no obligation to make compulsory payment, but they will face the punishment of prohibiting the purchase of new shares for six months after three times of insufficient payment, and the securities companies should only deduct the funds from the T + 2 daily investor’s capital account and should not freeze the capital in advance.
Chen Mengjie, chief strategic analyst of YueKai securities, told reporters that the early freezing of capital was a service launched by some securities companies in the past to avoid investors from missing the winning of new shares due to failure to pay in time, but the big background was that in the past, they basically “earned without losing”. At present, affected by many factors, the frequent breaking of new shares has also led to the gradual increase of the abandonment rate of new shares. The early freezing of capital may lead to a certain “dispute” with customers. The premise of relevant services and business development is to protect customers’ right to know.
On the other hand, she believes that we can also reduce and avoid similar problems through investor education, guide investors to treat the subscription of new shares rationally and establish a correct investment concept.
strengthen investor education
rational view of new share subscription
According to statistics, as of April 18, there were 90 new shares listed this year, of which 25 new shares broke on the first day, with a breaking rate of 27.8%. There are 9 broken listed companies on the gem and 16 on the science and innovation board. If the two sectors are calculated separately, the breaking rate of the gem is 21.43% and that of the science and innovation board is 50%. In addition, most of the stocks with the largest breaking losses have an issue price higher than 50 yuan or a valuation of more than 50 times PE.
In this regard, the chief investment adviser of a medium-sized securities firm in North China concluded that when applying for new shares, we should first look at the listed sector, then the industry, pay attention to the subscription price and P / E ratio of single shares, and finally pay attention to the benchmarking position of Listed Companies in the industry. It believes that there are still opportunities for innovation.
China Merchants Securities Co.Ltd(600999) research and consulting department researcher Li Xuan said that after the normalization of the break, the expected rate of return of playing new will decline, and the previous model of “closing your eyes and playing new” will also change. Investors need to conduct more in-depth research on new shares before subscription to avoid stepping on thunder as much as possible.
According to his analysis, at present, there are still traces to follow whether the new shares are broken or not. According to the results of simple mathematical statistics, it can be found that there is an obvious correlation between the section to which the new shares belong, the issuing price, whether they are profitable, the valuation and other factors. Gem and Sci-tech Innovation Board enterprises with high price and overvalued value are more likely to break. Therefore, in the short term, they will advise investors to take these parameters as the key points of reference when making new ones, and make new ones selectively.
Li Xuan pointed out that investors should strengthen education in the long run. He believes that with the gradual maturity of China’s capital market and the continuous improvement of relevant systems, the breaking rate of new shares may be further improved, and the role of simple quantitative parameters in playing new instructions will be weakened. Therefore, securities companies should strengthen the ability to guide investors to identify risks and establish a correct investment concept, and encourage investors to pay long-term attention to excellent companies rather than short-term speculation.
Chen Mengjie also said that under the background of the normalization of the breaking of new shares, the belief of “making a steady profit without losing” has been broken, and investors need to reverse the previous idea of “making a new profit”. In addition, all parties need to strengthen investor education, guide investors to pay attention to the fundamental research and analysis of individual stocks and industries, treat the subscription of new shares rationally, and form the investment concept of securities.
Wu Kaida said that for institutional investors applying for offline purchase, after the break, offline investors will also spontaneously correct deviations and reduce inquiry. After the integration of primary and secondary pricing, offline investors will pay attention to the fundamental research of new shares, and the follow-up research ability will replace the shortlisted rate as a new distribution logic. Investors will reconsider their safety margin and make a quotation, so as to break the free rider quotation strategy and rebalance the game. For individual investors, they should abandon the brainless new thinking and apply for the purchase carefully, and try not to abandon the purchase.
Sun Jinju believes that for individual investors, it is more suitable to participate in new investment by subscribing professional new investment funds.
institutional investors are also cautious about making new
The breaking tide of new shares is also affecting the whole capital market. Li Xuan believes that, on the one hand, investors participating in offline inquiry will participate in the quotation according to their own ability circle and safety margin, the marketization of IPO pricing will be improved, and the issuance price will be close to the fair price of the secondary market.
On the other hand, the income of new fund allocation continues to decline, the popularity of new fund allocation decreases, and some new funds or choose to withdraw from the market, which may have a certain impact on the heavy positions of banks, food and beverage, new energy and other new fund allocation industries. In addition, the number of investors participating in the new competition decreased, and the winning rate tended to increase.
Sun Jinju said that the breaking of new shares on the first day means that under the optimization of the new share inquiry system, the myth of the invincibility of new shares is being gradually broken, which is conducive to guiding new share investors to gradually move towards rationality and more professionalism. In the future, with the gradual promotion of the new inquiry system, the market-oriented value discovery function will further play a role in the pricing of new shares. The investment strategy of institutions to win quick money will gradually fail. The pricing of new shares will be more determined by the market, and the pricing efficiency will be significantly improved. The improvement of IPO pricing efficiency will also promote the rapid and reasonable pricing of sub IPO, and provide better opportunities for the investment of sub IPO.
Wu Kaida bluntly said that after the first and second level pricing is in line, investors will pay attention to the fundamental research of new shares, and the follow-up research ability will replace the shortlisted rate as a new distribution logic. Investors will reconsider their safety margin and make a quotation, so as to break the free rider quotation strategy and rebalance the game.
Chen Mengjie also believes that the breaking of new shares is accompanied by the rise of abandonment rate, which will force the pricing of institutions to become more reasonable to a certain extent, and the P / E ratio of subsequent issuance will be more objective and rational.
In this environment, institutional investors are also cautious. Wu Xiyan, fund manager of the equity investment department of Pengyang fund, said that in the future, it will be more difficult to calculate the income of new share issuance. Playing new is more like an active investment variety than the previous stable income investment, so it has higher requirements for the experience of participants. From the perspective of strategy, playing new returns in the future is no longer policy arbitrage, but also tests the fundamental research and quotation ability of professional institutional investors for listed companies. They will spend more energy on studying the subscription and pricing of new shares, strive to play new absolute returns, conduct value investment, decentralized investment and reverse investment, prevent tail risks, and emphasize bringing stable trading experience and better Revenue experience to customers. As institutional investors, they will participate in the quotation more carefully, and the shortlist rate may be greatly reduced. However, as long as there are absolute returns in the new share market, the company’s research ability and close tracking of new shares are still meaningful. In terms of new asset allocation, for the bottom position of hybrid products, the bottom position should be regarded as a stock fund to obtain active income.
From the perspective of new returns, Wu Xiyan said that after the recent break, the quoted price of institutions is expected to be reduced, the new returns of the whole market will be reduced, and investors will gradually withdraw, and the shared returns of remaining investors may be increased. This is a process of continuous dynamic adjustment of market supply and demand.
The head of investment research of a head fund company in Shenzhen said that they would conduct more detailed research and Discussion on the subject matter of the new share before participating in the innovation, and give what they think is a reasonable offer based on its actual fundamentals and in combination with the recent market environment.
Sun Jinju concluded that in the future, institutional investors’ participation in innovation should gradually change from the previous strategy of “playing every new game” to “optimizing individual stocks”. It is necessary to strengthen their own fundamental research, improve the valuation and pricing ability, and avoid possible breaking new shares by screening targets with good fundamentals and reasonable pricing, so as to achieve stable innovation income.
