China's largest search engine, Baidu.com Inc, yesterday said it would increase the number of shares, and their price, in its initial public offering (IPO) only one day before its trading debut on the NASDAQ stock market.

The Beijing-based company increased its IPO share volume to 4.04 million American depositary shares (ADS) for between US$23 and US$25 per ADS.

The company had previously planned to issue 3.7 million ADS's with a price range between US$19 and US$21 each.

Baidu filed an amended offering document to the US Securities and Exchange Commission yesterday, announcing it plans to sell 3.2 million shares. Shareholders will offer a further 831,706 shares.

The underwriters, Goldman Sachs (Asia) LLC, Credit Suisse First Boston and Piper Jaffray, also have an option to sell an additional 560,000 shares, more than the originally planned 512,000.

Putting all these ADS's together, the firm, known as China's Google, could raise US$115 million and market observers predict its market value could reach US$650 million on its first day of trading.

The company said it will use the funds to develop or buy new technology and products, and for general corporate purposes.

About a year ago, Google launched its IPO and now its share price has tripled.

Google also holds 2.6 percent of Baidu, but the Chinese firm said it did not want to be bought by Google.

When Baidu priced its shares at between US$19 and US$21 last month, some observers said the price was too high.

After the adjustment, the firm's price/earnings (P/E) ratio has increased to about 225, higher even than the former ratio of 200 under the former share price.

By contrast, the P/E ratio for the Internet service sector in the domestic market is about 20.

"This is not strange," said Zheng Jinqiao, CEO of Beijing-based Richlink International Capital, an independent investment advisory firm.

"US investors are very enthusiastic about China's Internet companies and only a few mainland companies have been listed on the NASDAQ," he said.

The Internet sector in China has a very promising future, he added.

According to the latest statistics from the China Internet Network Centre, at the end of June this year, China had around 103 million Internet users, 18.4 percent higher than at the same period last year. And more than half of these users surf the Internet using broadband.

Meanwhile, according to Shanghai iResearch, the leading domestic research firm covering most aspects of the Internet, China's search engine market is worth about 1.25 billion yuan (US$154 million), with an annual increase rate of 81 percent.

Iresearch also predicts the market will be worth 5.62 billion yuan (US$694 million) in 2007 when the number of search engine users reaches 190 million, up from the current 80 million.

At the moment, China's search engine market is dominated by Baidu, Yahoo and Google. Their market shares are 36.3 percent, 22.7 percent and 21.2 percent respectively.

(China Daily August 5, 2005)