Investor appetite in Hong Kong for Xiaomi’s stock is low due to a range of reasons which include overall market sentiments, Xiaomi’s valuation of the stock in comparison to its peers, and the fact that investors see it as a hardware firm as opposed to a hardware and internet services firm.
Shares of Chinese smartphone maker Xiaomi Corp fell by 6% on their Hong Kong debut delivering a big blow to investor sentiments in the tech sector which is seeing a lineup of potential listings in the city.
Despite the fact that Xiaomi priced its Hong Kong initial public offering (IPO) at the bottom of its indicative range, on Monday, as of 0234 GMT, its shares touched a low of HK$16 indicating low investor appeal for the Chinese stock.
“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 Linus Yip, chief strategist at First Shanghai Securities.
Incidentally, Xiaomi’s share price of HK$17 represents a multiple of 39.6 times its 2018 earnings; in comparison Apple’s stock is trading at 16 times their 2018 earning while Tencent Holdings stock at 36 their 2018 earnings.
The listing comes at a time when the Hong Kong stock market’s benchmark index touched its 9-months low with investors fretting over an escalating trade war between the United States and China.
According to information detailed in its filing, made available on Friday, Xiaomi’s IPO did not attract strong interest among investors with its retail tranche oversubscribed by only 9.5 times. In contrast, in 2017, the e-book arm of Tencent Holdings, China Literature Ltd raised $1.1 billion in its Hong Kong IPO midst heavy demand; its retail portion was oversubscribed by 625 times.
Further, apart from the trepid market conditions, the reduced investor appetite can also be because investors view Xiaomi as a hardware maker rather than a hardware and internet-services firm, as the company sells itself to be.
“We are an internet firm. From day one, we’ve set up a dual-class share structure. Without the innovation of Hong Kong’s capital markets, we wouldn’t get a chance to go public in Hong Kong,” said Lei Jun, Xiaomi’s founder and CEO at its a listing ceremony at the Hong Kong stock exchange.
When asked whether Xiamoni’s listing performance will weigh on upcoming IPOs, Charles Li, Hong Kong stock exchange CEO said, “We cannot put a brake. The market is always open. It’s open to everybody…If you don’t like the price, you can stay away.”