Shares in China Literature, Tencent Holdings’ on-line publishing arm and mainland China’s largest on-line publishing and e-book web site, skyrocketed almost 90 per cent in worth by the shut on Wednesday, after initially leaping 64 per cent instantly in early buying and selling in Hong Kong, in what’s been dubbed town’s hottest IPO in almost a decade.
The surge gave retail buyers who gained the bid for brand new shares a first-day revenue of HK$9,480 per lot in e-book worth – the very best among the many foremost board’s IPO debuts since November 2007, when Alibaba posted a first-day revenue report of HK$13,000 per lot after hovering 192 per cent.
China Literature’s one lot incorporates 200 shares.
China Literature closed at HK$102.four, giving it a market capitalisation of HK$93 billion, after touching a every day excessive of HK$110 earlier within the morning, doubling its IPO worth of HK$55 (US$eight.29). 143 million shares modified palms through the day, value a complete HK$14 billion.
The shares had closed greater than 60 per cent above their IPO worth within the so-called gray market – when new securities are purchased and bought earlier than official buying and selling begins – forward of what market watchers had already anticipated could be a blockbuster debut. The retail portion gathered demand 626 occasions the variety of shares on provide.
“Many small investors were chasing the stock, as it was hard for retail bidders to get an allotment of new shares during the public offering period,” stated Victor Au, chief working officer for Delta Asia Securities.
“The IPO captured great investor interest, largely due to Tencent’s brand effect.”
Tencent, which controls greater than half of China Literature, hit a brand new all-time excessive of HK$398.6 on Wednesday, earlier than erasing positive aspects, closing the day at HK$385.6, down 1.four per cent.
Its market cap hit HK$three.66 trillion (US$470 billion), inching nearer to New York-listed Alibaba’s US$482 billion, probably the most beneficial firm in Asia. Tencent’s inventory has spiked greater than 100 per cent this 12 months.
“The valuation [for China Literature] is stretched at the current level, far away from the fundamentals,” Au stated, suggesting the value could also be costly for an organization that solely simply turned a revenue in 2016 after two straight years of losses, regardless of having robust progress potential.
“It’s risky to chase a high. Small investors should watch out for the risks.”
China Literature reported a first-half web revenue of 213.5 million yuan, swinging from a lack of 2.four million yuan in the identical interval final 12 months, in line with its inventory sale prospectus.
In 2016 as an entire, it generated a revenue of 30 million yuan, following losses of 354 million yuan and 21 million yuan for 2015 and 2014 respectively.
It makes its income primarily from charging readers to entry standard tales from well-known authors who’ve been contracted to write down, in addition to working mental property rights, together with adapting these tales for movie, tv, video games, or comedian and animation, or licensing content material to companions.
Wu Wenhui, its co-chief govt officer, stated earlier this 12 months that the corporate’s future focuses can be growing movie, tv, video games, and different leisure merchandise based mostly on its IP.
“We want to become China’s version of Marvel,” Wu stated then.
“Through this IPO, we want to bring Chinese original literature to a more Hong Kong and global audience. In future, the company will try to develop products based on the IP we own, and also expand the genres of e-books,” he added on Wednesday.
Liang Xiaodong, Wu’s co-CEO stated: “We are shocked by at this time’s inventory efficiency. But that is just the start. We will proceed working arduous and rising our company values long term.
“Hong Kong is an open and international market and combines mainland and international investors. In particular, the Stock Connect allows mainland investors to invest here,” he stated, responding to questions on why the agency selected Hong Kong to checklist.
China Literature has a enterprise akin to Amazon.com Inc’s Kindle Store. The platform has 9.6 million literary works from 6.four million authors.
The IPO has locked in investor capital of greater than HK$520 billion, the second largest in Hong Kong IPO historical past, after China Railway Construction’s HK$535 billion in 2008.
The enthusiasm for China Literature additionally broke the report set by ZhongAn Online Property & Casualty Insurance final month, town’s largest expertise IPO of 2017, which was overbought by 391 occasions.
Among the 103,352 retail bidders who’ve subscribed for one lot of 200 shares per individual in China Literature, fewer than eight,000 have been profitable in getting their palms on its inventory, with every individual allotted a single lot.
Alvin Cheung, a director for Prudential Brokerage, stated the quantity of locked-in investor capital – over HK$520 billion – accounted for a couple of third of Hong Kong’s cash provide, based mostly on the second quarter M1 determine from Hong Kong authorities.
The firm had deliberate to allocate 10 per cent of its international providing to the general public in Hong Kong, or 15.14 million shares. The oversubscription has triggered a clawback rule, enabling underwriters to extend the general public providing tranche to 33 per cent, or 49.95 million shares. Excluding charges, web proceeds from the IPO can be HK$7.2 billion.
Nearly a 3rd of the web proceeds can be used to increase its “online reading” enterprise, together with rising its community of “promising [contract] writers” and increasing the genres of e-books, the corporate stated in its prospectus.
China Literature owns IP rights to a variety of vastly standard on-line novels in China, together with fantasies Ghost Blows Out the Light collection and the Grave Robbers’ Chronicles, which have already been tailored for movie and tv a number of occasions.
The the rest of the proceeds will fund potential investments or acquisitions, or be used as working capital and common company functions.
With further reporting by Karen Yeung