wonder.jpgIts
almost two years to the day that China Wonder, with much fanfare,
became the first Chinese company to float on London's AIM market. But
the company's latest financial results give investors little reason to celebrate.

Sales
at the half-way mark are down a third to just over £0.5m while pre-tax
profits have halved to just £65,000. The company blamed the results on
the “cyclical nature of our business” and said things would get better
in the second half.

This is the company, you will remember,
whose share price soared 370% in the first two weeks of trading on AIM,
London's junior market, prompting comparisons with the dotcom boom of a
few years before. The Financial Times commented at the time:

It
[China Wonder] has helped to highlight the pent-up demand among
investors for a piece of the action in the country's rapidly expanding
economy.”

But since hitting a peak of 112.5p China
Wonder's share price has moved mostly down over the past two years.
Today it is just 4.5p above its 24p placing price. Those institutions
who paid the placing price can still make a profit.

But private investors who joined the feeding frenzy in the days after China Wonder's flotation have had less luck.

No
doubt, they are wondering why they got so excited about a small Chinese
company that makes packaging equipment. Clearly the name helped. China
Wonder is just the holding company but its sounds a lot more exciting
than Jinzhou Wonder Packing Machine Company, the operating subsidary.

To
be fair, China Wonder doesn't make just any packaging machines. It
specialises in “bubble cap packagers” and other hi-tech machinery used
to package pharmaceuticals. That sounds like a good niche to be in.
Indeed, in the three years up to its flotation, sales and profits had
risen each year, and the company had great hopes for the future because
of its focus on China's “fast-growing pharmaceutical market.”

I don't doubt that China Wonder operates in a promising market. But its also a highly competitive one — just Google “pharmaceutical packaging machines” to see how many Asian manufacturers are competing for your order.

The
moral of the tale, for those who haven't guessed already, is that just
because a business has China as its principal market — or “China” in
its name — doesn't mean it will be hugely successful. And it
definitely doesn't mean that the its share price can defy the laws of
gravity.

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