Injured Chinese IPOs To Offer Value Opportunities

by: Kevin Quon

The spectre of China's reverse merger ghosts continue to loom over the market as domestically traded Chinese small-cap companies continue to host valuations far below their book values. While investors in America have recently felt the backlash of exposed fraud, they were by no means alone in the game of pain. Chinese investors also suffered the latest outbreak of exposed fraudulent practices that continues to lay waste to confidence across the sector.

Whereby the extent of the fraud damage and implications remains far from being fully determined, what is clear is that the sentiment has continued to crush many who were never implicated to begin with. No greater is this splash effect being felt than in the small cap sector for Chinese IPO's that have subsequently been harmed in light of falling investor confidence. Often undergoing screening by their well known underwriters, Chinese companies that have IPO'd in America are largely believed to be more legitimate than the reverse takeover companies that have largely been the source of the fraud problem.

This isn't to say, however, that Chinese IPO's have been free from their own amount of suspicious issues. As Dan from China Law Blog pointed out in his own article, several documented abnormalities exist when it came to SEC disclosures for NetQin Mobile Inc (NQ), VisionChina Media Inc (NASDAQ:VISN), and RenRen Inc (NYSE:RENN).

Cases of apparent fraud also didn't go down well for Duoyuan Global Water (DGW), an IPO company listed on the NYSE. The company wound up on the naughty list after halting its trading back in April 2011 in light of fraud accusations. In the case of Duoyuan Global, Piper Jaffray (NYSE:PJC) had served as the lead underwriter for its IPO. It is a respectable firm in its own regard. Likewise was the case for Longtop Financial Technologies Ltd. who stopped filing its financial statements in May 2011 upon similar accusations. Longtop's IPO was underwritten by Goldman Sachs (NYSE:GS) and Deutsche Bank AG (NYSE:DB), two of the most reputable underwriters available.

While the IPO market appears to have its flaws as well, scandals appear to have abounded primarily in the Chinese reverse merger stocks. These has left Chinese IPO's relatively unscathed, although subjectively vulnerable to public sentiment. While undoubtedly taking a risk, investors who believe that there are some legitimate companies being dumped along with the junk, might do well to consider fishing at the sector's bottom. Such Investors looking for value at the bottom of the barrel and willing to risk the environment surrounding publicly traded China might do well to consider some of the following companies that had their initial public offerings listed on American exchanges in prior years:

China IPO Company IPO Price Current Price (1/4/12)
Sky-mobi Ltd (NASDAQ:MOBI) $8 $3.39
E-House Holdings Ltd (NYSE:EJ) $13.8 $4.64
Noah Education Holdings (NYSE:NED) $14 $2.24
Xinyuan Real Estate (NYSE:XIN) $14 $1.80
China Digital TV (STV) $16 $3.31
WuXi PharmaTech (NYSE:WX) $14 $11.45
Perfect World (NASDAQ:PWRD) $16 $11.53
Qiao Xing Mobile (NYSE:QXM) $12 $1.02
Acorn International (NYSE:ATV) $15.5 $4.18
Simcere Pharmaceutical (NYSE:SCR) $14.5 $9.45
3SBio Inc (NASDAQ:SSRX) $16 $10.17
Fuwei Films (NASDAQ:FFHL) $8.28 $1.23
Melco PBL Entertainment (MPEL) $19 $9.82
China Shenghuo Pharm. (KUN) $4.45 $0.34
Yingli Green Energy (NYSE:YGE) $11 $4.04
LDK Solar (NYSE:LDK) $27 $4.24
Trina Solar Ltd (NYSE:TSL) $18.5 $7.07
Canadian Solar (NASDAQ:CSIQ) $15 $2.81

Disclosure: I am long XIN, CSIQ.