Monday, October 18, 2010

Chinese Wind and Solar IPO's: Volatile

And if you are any good at this stuff volatility is your friend.
From Barron's:

Trading has been volatile in newly listed shares of Chinese wind-power and solar companies, even though the long-term outlook for renewable-energy investments in China is bright.
Last week's listing of China Suntien Green Energy is the fourth offering in some two weeks of a Chinese company in the renewable-energy business. Given the roller-coaster performance of these deals, investors could be forgiven for giving this sector a wide berth.
Suntien (ticker: 0956.Hong Kong) listed on Wednesday and fell by 4% in its first day of trading. On the second day, it rebounded by nearly 5% to close 0.7% above its HK$2.66 (34 U.S. cents) initial-public-offering price.
Its predecessor into the market, China Ming Yang Wind Power Group (MY), fell by 5.4% on its first day. Two weeks after its IPO, it has moved steadily lower, to around US$11, or 22% below its $14.15 IPO price.
The first two of the four recent IPOs were Trony Solar (2468.Hong Kong) and Xinjiang Goldwind Science & Technology (2208.Hong Kong). Both have done considerably better than the latter two: Trony was up 14.2% from its IPO price in two weeks, and Goldwind rose 15% in 10 days.
If investing in China is risky, investing in Chinese renewable operations is risk squared. Renewable stocks in other parts of the world have taken a beating in the past 12 to 18 months. The SG European Renewable Energy Index, for example, is down by 39% in the past 12 months.
But China offers some intriguing possibilities. According to Ernst & Young's Renewable Energy Country Attractiveness Index, China is the most promising global investment destination for wind, solar, hydro and nuclear companies.

For one thing, China needs energy, and renewables offer an escape route from imported oil. Also, the country wants to be a major manufacturer of renewable-energy hardware, such as the wind turbines made by Ming Yang or the solar panels made by Trony Solar.

The divergent performance of Goldwind and Ming Yang, which both make wind turbines, could be explained by their government connections. Companies such as Goldwind, with ties to provincial governments, are likely to do better attracting equipment orders than purely private companies such as Ming Yang. "We prefer companies that have SOE [state-owned enterprise] management, as they are more conservative and have better access," says Adam Worthington, energy analyst at Macquarie Securities in Hong Kong.

Other factors to consider are China's natural geography. There is a lot more wind than sun in China, and the government has placed a strategic bet on wind companies over solar. Under its tariff structure, wind companies can charge more than solar companies for the power they produce....MORE