(July 24): Investors are looking to Monday’s trading debut of CXMT Corp to help renew a rally in Chinese semiconductor stocks that has been on pause ahead of the memory giant’s initial public offering (IPO).

The chip-heavy Star 50 Index fell into a bear market this month as funds repositioned for the IPO, which values CXMT at US$86 billion (RM351.36 billion), making it China’s largest-ever chip offering. Still, the valuation at about one-tenth that of larger rival SK Hynix Inc is seen leaving ample room for CXMT to run.

It’s expected to perform well given an IPO that was hundreds of times oversubscribed and that listings on the STAR Board face no daily percentage limit for the first five trading sessions. Given CXMT’s heavy state backing as a key component of China’s drive for tech self-sufficiency, a big jump could provide a halo effect for other local chip stocks.

“If it opens up 500%, I won’t think it’s a surprise because it’s probably the lower end of the market expectation,” said Bush Chu, an investment manager at Aberdeen Investments. “I’m still super-bullish on China hardware as a whole, especially the semiconductor localization chain.”

The listing of CXMT follows a red-hot rally in global memory stocks on the artificial intelligence (AI) boom. Foreign investors who don’t hold a licence to trade A-shares directly have limited access prior to the stock’s addition to the Stock Connect programme, other than through crypto and equity derivatives.

The debut also comes after big gains in mainland chip shares as investors piled into beneficiaries of AI spending by Chinese tech giants including Alibaba Group Holding Ltd and Tencent Holdings Ltd. Beijing is supporting the entire value chain as it strives to compete with the US in the tech sphere.

“CXMT’s major shareholders are government-backed investors, which ensures its share price will remain on an upward trajectory,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “If the stock opens with strong, continuous gains, its ability to lift the broader domestic hardware sector will be very powerful.”

Valuation could provide further appeal for CXMT shares, with investors growing invreasingly cautious over AI-inflated multiples. The Chinese memory maker’s IPO price of 8.66 yuan implies 2.4x book value.

That’s a 56% discount to the average price-to-book ratio for global DRAM peers SK Hynix, Micron Technology Inc and Nanya Technology Corp, according to Bloomberg Intelligence. It represents an even steeper 77% discount to the average for Chinese chipmakers Semiconductor Manufacturing International Corp and Hua Hong Grace Semiconductor Ltd. 

CXMT’s profitability has improved dramatically along with prices for conventional DRAM, which comprises the bulk of the company’s business, Semianalysis wrote in a report last month. While some observers have worried about CXMT using its IPO funds for a large capacity expansion that could drive down memory prices and hurt margins, the research firm sees such concerns as overdone, at least for the next two years.

Shortages of chips are so drastic currently that Apple Inc is in negotiations to purchase memory components from CXMT and flash storage maker Yangtze Memory Technologies Co for use in devices sold in China. That’s even as the two Chinese firms remain on a Pentagon blacklist.

The ability of CXMT to produce high-bandwidth memory to work with advanced AI processors has been limited by restrictions on exports of tech equipment to China. Nevertheless, the company is seen as central to Beijing’s efforts to bolster local tech.

“CXMT operates in a strategically important segment of China’s semiconductor industry,” said Luo Jing, an investment director at Value Partners. “Its market performance following the listing may influence investor attention towards companies within the semiconductor value chain.”

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