The rally on the Shanghai market may have paused in recent days, but one company’s shares have continued their skyward trajectory. Showing little of the concern that has weighed down the Shanghai Composite Index (SCI), retail investors have flocked to Panda Fireworks (600599.SH), China’s only listed fireworks manufacturer.
The company’s shares closed on August 27 at RMB23.29 (US$3.40), a gain of 102.7% in a month. Shares had reached RMB25.32 on August 26 before retreating slightly.
Analysts say there is little in the company’s fundamentals to justify the stock’s valuation. While the company posted net profit growth of more than 37% in the first quarter, the closing price on August 27 reflected a price-to-earnings ratio of 176.45.
"There is too much speculation. It’s totally unrelated to fundamentals," said Miao Ji, senior account manager at CITIC Securities. He maintains a target price for Panda’s shares of RMB15.
Panda is not alone in enjoying the fruits of speculation. Mei Xianfeng, a stock analyst at CITIC Securities, noted that Double Coin Holdings (600623.SH), a Shanghai-based tire manufacturer, has seen its stock rise nearly 22% in the last month on speculation by funds and individual securities traders.
For Panda, speculation has been sparked by excitement the company’s potential involvement in the People’s Republic’s 60th anniversary celebrations in Beijing this October. While no information exists regarding the government’s choice of fireworks supplier, investors have bet that Panda’s prominence will win it a place in the festivities. The company shot to fame as the provider of fireworks for the 2008 Beijing Olympics.
"Panda is one of the best companies in this industry," said an analyst at Hongyuan Securities who gave her surname as Li. "Its position is dominant." Even so, Li said her target price for the stock was "under RMB20."
Whether or not Panda wins the government’s blessing for the National Day holiday, it has already attracted Beijing’s attention in another way: The rapid rise of the company’s shares led regulators to suspend their trading on August 24. Panda’s shares have continued to increase following the suspension, but at a slower pace, rising 8.93% from August 25-27.
Analysts say that they don’t expect Beijing to take any further action for now. However, further rapid rises could prompt renewed restrictions.
"If Panda continues to deviate from the market index, I think regulators will take action," Li said.