Xiaomi’s weak debut portends trouble for imminent HK tech listings
Worrying sign for upcoming listings, Chinese smartphone shares lose 6% on debut
HONG KONG: Xiaomi Corp's shares fell as much as 6 per cent in their Hong Kong debut on concerns over the Chinese smartphone-maker's valuation, in an ominous sign for its technology sector peers who have lined up listings in the city.
The share performance of Xiaomi is a key test of investor sentiment for what is expected to be a packed initial public offering (IPO) calendar in the coming months.
"Other IPO candidates will rush to Hong Kong to list before the market sentiment shifts. And they have to speed up the pace if they aim for a good valuation," said Mr Hong Hao, chief strategist at brokerage Bocom International.
"However, given the targeted high valuations of many new-economy IPO hopefuls and the number of IPOs going forward, it will be challenging for the market to digest all of them,"Mr Hong added.
Xiaomi priced its IPO at HK$17 (S$2.90) per share, the bottom of the range it offered, raising US$4.72 billion (S$6.4 billion) in the world's biggest technology float in four years.
Its shares touched a low of HK$16 in early trade and later rallied to briefly touch its IPO price. The stock was at HK$16.88 after the midday break, while the main Hong Kong stock market index was 1.7 per cent higher.
Xiaomi's listing comes as investors fret over escalating trade tensions between the US and China that have shaken markets over the past several weeks.
The spat pushed Hong Kong's benchmark index to a nine-month low last week.
Xiaomi's IPO valued the company, which also makes Internet-connected home appliances and gadgets, at US$54 billion, almost half the US$100 billion it had initially hoped for and below its more recent target of at least US$70 billion.
Xiaomi had expected to raise up to US$10 billion between its Hong Kong and a mainland offering. But in a surprise move last month, it postponed its mainland share offering.
The HK$17 price valued the company at 39.6 times 2018 earnings, while iPhone-maker Apple is trading at 16 times and Chinese social media and gaming giant Tencent Holdings at 36.
"Trading below the issue price suggested that investors still felt the valuation of the stock was relatively high as compared with Tencent and Apple," said Mr Linus Yip, chief strategist at First Shanghai Securities.
Potential investors also struggled to view the company as the Internet player it considers itself, rather than as a smartphone-maker - the lower-margin business that now generates most of its profits, sources said.
Xiaomi sold 2.18 billion shares, making the IPO the largest in the tech sector since Alibaba Group raised US$25 billion in New York in 2014.
The float adds to Hong Kong's $7 billion worth of new listings this year. It is also the first under the city's new rules permitting dual-class shares, common among US tech firms, in an attempt to attract tech sector floats.- REUTERS
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