(Updates with midday price, adds quotes)
By Vicki Kwong
HONG KONG, Oct 30 (Reuters) - Shares of Chinese mini-car and helicopter maker AviChina Industry & Technology Co Ltd jumped nearly 20 percent in their debut on Thursday morning in Hong Kong, as investors bet economic growth will boost its sales.
Shares in AviChina ended the morning session at HK$1.45 after being issued at HK$1.21 each. The stock was the fourth-most actively traded on the main board, with HK$924.74 million (US$118.56 million) worth of shares changing hands.
AviChina bucked a downward trend on the blue-chip Hang Seng Index , which lost 0.4 percent by the midday break.
"Investors are confident about its business outlook," said Ben Kwong, associate director at brokers KGI Asia Ltd. "Cars and aircraft are both high-growth industries in China."
Beijing-based AviChina raised HK$1.935 billion from its initial public offering, the first from an offspring of a Chinese military conglomerate.
The company, the civil unit of Aviation Industry Corp of China II (AVIC II), is the largest mini-car maker in the country with a 41 percent market share. It is also the only domestic mass producer of helicopters and regional jets in China.
AviChina's share offering was heavily oversubscribed, reflecting strong appetite for new equity issues in Hong Kong amid improving market sentiment in recent months.
The company sold 1.599 billion shares, or 35 percent of its enlarged share capital, in a listing sponsored by BOC International and ING Bank.
The retail portion of the IPO was raised to 50 percent from 10 percent after public investors subscribed for 154.9 times the number of shares on offer. The institutional tranche was more than 10 times covered, sources said.
The pricing of AviChina's IPO, which came in at the top end of an indicative range, could have capped first-day gains for the stock, traders said.
"A lot of the shares went to retail investors and they may be looking to take profits," said Herbert Lau, research director at Celestial Asia Securities. "The stock should do better after this has been digested."
AIRCRAFT ASSEMBLY BUSINESS
European aerospace consortium EADS , the owner of commercial aircraft maker Airbus, has agreed to buy five percent of AviChina. The stake is expected to cost HK$276.48 million based on the IPO price.
AviChina expects to post a net profit of at least 450 million yuan (US$54.35 million) this year, which would be a 13.4 percent increase from 2002.
The firm has said that its car business, which made up 80 percent of revenues last year, will likely remain the largest source of income in the near term.
But it expected its aircraft assembly business to drive future growth as China's economy continues to expand.
AviChina has 49 percent of a venture with Embraer to make parts and assemble the Brazilian firm's regional jets in China, with the first such aircraft set to be completed by the end of this year in the northeastern city of Harbin.
The firm also has partnerships with United Technologies Corp's Sikorsky Aircraft and Eurocopter to make helicopters.
AviChina plans to use proceeds from the IPO to expand its production capacity for cars, and develop its helicopter and regional jet businesses.
The company sold its IPO shares at 13 times forecast 2003 earnings on a fully diluted basis.
Shares in Denway Motors Ltd , Honda Motor Co's joint venture partner in China, are trading at about 15.4 times forecast 2003 earnings. (US$1=HK$7.8=8.28 yuan)