Translated by Andrew Vanburen from a Chinese-language piece in the Dongfang Daily
WHAT A DIFFERENCE three years can make.
Or for investors in China's start-up board... six months.
Nearly three years ago, the ChiNext Board – the country’s best imitation of the Nasdaq – was launched with great fanfare, sporting dozens of triple-digit P/Es.
Now, a full third of interim results reveal shrinking bottom lines.
So investors and analysts alike are likely asking the question: Are the board's glory days history?
Launched in October 2009 to provide capital to “high growth potential” startups, the ChiNext has since grown to include 346 domestic A-share firms.
But following the flood of interim reports flowing in over the past few weeks, the relatively new Shenzhen-based board has for the first time in its short history had an average net decline in bottom lines.
With all interim reports in, of the total of first-half reporting enterprises, a full one-third are reporting net losses for the period.
Despite its high-flying start with several newcomers having P/Es over 100 times, the capital raising platform has since seen many members delisted for a whole host of “irregularities,” with P/E ratios coming back down to earth.
And now it seems “China’s Nasdaq” is now no longer able to escape the downside from its host country’s slower-than-expected economic growth.
The overall net profit growth of ChiNext-listed firms in the first half has fallen 20 percentage points from a half-year earlier to (-2.25%).
Including all 346 ChiNext firms, their total net profit for the first half totaled 11.75 billion yuan, down 1.8% from a year earlier.
Although this is not a startling fall – especially given the weak economic climate they operate in – it is nevertheless shocking to loyal ChiNext shareholders who have no doubt grown accustomed to the high P/Es and continuously strong bottom line performances year in and year out.
Since its founding three years ago, the ChiNext has witnessed the following average bottom line performance on a sequential, half-year basis: 55.23%, 50.16%, 25.04%, 43.06%, 22.69%, 18.42% and most recently... -2.25%.
Even more worrisome for investors in “China’s Nasdaq” is the fact that the 20 percentage point drop came about so swiftly and sharply, and that not only are inventory backlogs becoming an issue but inventory days are piling up and presenting a barrier to a quicker recovery.
Of the 346 ChiNext firms, 134 – or some 39% -- saw shrinking net profits in the first half, with nine announcing outright net losses for the period.
Not even the “fast growth potential” firms gracing the ChiNext are immune to the downside pressures of a sluggish domestic and global economy, it would seem.
Investors are urged to keep a close eye on any sudden shifts, especially after the ChiNext dipped 5% at one point on Thursday.
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