Chinese TMT IPOs continue to boom

Another day, another Chinese IPO in the TMT sector. Over the past year a steady flow of news regarding upcoming Chinese TMT IPO’s are being reported. Major examples include China Tower Corp, which is expected to raise US$10bn; smart device maker Xiaomi, reportedly looking to raise US$10bn; Chinese food review and delivery platform Meituan Dianping, due to raise US$9bn; music streaming player Tencent Music Entertainment, expected to raise US$3-US$4bn; online healthcare business Ping An Healthcare and Technology, which has raised US$1.1bn; and peer to peer lending (P2PL) platform Qudian which has raised US$1bn, valuing the firm at US$7.9bn.

Bullish analysts and consultants are predicting more to come still. Here are some trends which TMT Finance expects to emerge:

- An increase in Hong Kong listings

A large number of those Chinese companies listing, planning to list and those already public, are increasingly doing so in Hong Kong. As TMT Finance previously reported, these include China Tower Corp, Xiaomi, Meituan Dianping, Ping An Healthcare and Technology, P2PL firm Lufax, online travel firm Tongcheng-Elong Holdings, online recruitment platform Liepin.com, bitcoin mining equipment makers, Canaan Creative and Zhengjiang Ebang Communication, adtech startup Mobvista, online furniture and home decoration platform Qeeka Home, ecommerce firms Mia.com and BabyTree, online education platform Hujiang.com, live broadcasting app Yingke, education provider China Education Group, credit card management app 51 Credit Card, e-book publisher China Literature, etc.

According to sources, the attractiveness of the Hong Kong market is down to several reasons. First, the exchange has amended its listing rules, which enables tech companies to list if they meet certain requirements for valuation and revenue. What’s more important, the new rules allow companies to list in dual class stock structure, which would protect company founders’ right of controlling the company. Before the new rules were introduced, if companies couldn’t list in mainland China, they most likely chose to list in the US, which enables companies to list under a dual class stock structure.

Secondly, sources said the push toward HK has also been as a result of changes in regulation for mainland Chinese IPOs. The valuations given for listings in mainland China are generally higher than listings in international stock exchanges, and if TMT companies can meet the financial performance requirements set by Chinese regulators, they would choose to list in the domestic market. However, since last year, the listing rules in mainland China are getting tighter, and the number of approved IPOs from regulators has decreased. Many TMT companies that were looking to list in mainland China were concerned if the listing would be approved by regulators, therefore, they chose to list in the international stock markets instead.

- How many companies are looking to list in HK?

According to sources, more Chinese TMT IPOs are coming out in H2 this year, versus H1. It is said that over 100 Chinese companies are queuing for IPOs, most of which are TMT companies. For these companies, most of them are planning to list under dual class stock structure. Chinese TMT IPOs will keep booming in H2 from both volume and IPO size perspectives.

- Which TMT subsectors will be popular in the next 12 months?

Several subsectors are seen to have particularly strong prospects in Chinese TMT, according to sources. They are: O2O (online-to-offline) businesses, entertainment media and driverless cars.
O2O businesses: as telecom infrastructure becomes well-established and smartphones become cheaper, Chinese consumers prefer to use mobile phones to solve everyday issues, such as living, eating, shopping and transportation. Many O2O business such as food delivery or ride-hailing business are very popular among investors and are usually highly valued.

Entertainment media: this sector is getting hotter and hotter. There has been a surge in IPOs of live video streaming businesses such as Douyu and Huya, which offer different business models compared to Netflix. They’re usually backed by BAT (Baidu, Alibaba and Tencent), through whose help, they can be part of the individual ecosystem BAT have built. And these provide multiple options for monetisation. Also, China is commercially launching 5G services in 2019-2020, which will boost entertainment media businesses to further grow and provide a better experience. After a wave of IPOs of live video streaming firms, the next surge in entertainment media is likely to be music streaming, which is also encouraged by the successful IPO of Spotify.

Driverless cars: It is thought that China will be one of the countries that will push hard into driverless cars and automated driving in the next couple of decades. Those companies performing well in this market, and the companies in the value chain (eg. software business that can create a virtual auto driving environment) will have great potential in the capital market. BAT also have their own backed businesses in automated driving and it is likely that BAT would spin off these businesses for IPOs.

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