What’s next after the hot China Literature IPO?
A spinoff of Tencent Holdings, the e-book publisher attracted the equivalent of about US$66.7 billion in capital for its initial public offering
If there is a Chinese name that can move the market, it is “Ma.” Literally it means “horse,” which runs very fast. If Alibaba Group’s Jack Ma has dominated the market by buying into different sectors in different countries over the past three years, Tencent Holding’s Ma Huateng, aka Pony Ma, appears to be fast catching up with Jack while also cashing out his investments for quick profits.
It started when Zhong An Insurance, which had yet to make any profit from online insurance, became the stock of choice in October with a nearly 50% post-IPO share price as investors rushed to become shareholders with the Mas, which also included Ping An Insurance’s Ma Mingzhe as a substantial shareholder.
But three Mas may not be as powerful as just one. Consider the case of China Literature, a spinoff of Tencent Holdings (00700.HK), which put Hong Kong retail investors into a frenzy, with more than 400,000 subscribed for the US$1.1 billion issue.
Mainland China’s biggest online e-book publisher was able to attract more than HK$520 billion (US$66.7 billion) in capital for its initial public offering, the highest in nine years after the hottest-ever IPO by China Railway Construction Corporation in 2008.
Given the financial literacy of Hong Kong retail investors, famously throwing millions of dollars at a stock without even flipping a page of the listing prospectus, I would say they are here for only one reason: an encore of Tencent’s performance.
Tencent, China’s biggest game maker and an instant-messaging provider (WeChat), has become a must-own stock, as the Internet giant with a humble name has surpassed HSBC and China Mobile to stand side by side with Apple and Google as the world’s most valuable companies.
Since debuting with a HK$3.7 price in 2004, the stock surged near 500 times to close at HK$361.8 on Thursday despite the shares splitting one-for-five after the listing.
If not for this spectacular run, it would be hard to imagine so many people showing interest in buying a new company with a price-to-earnings ratio of more than 100 times, even higher than Tencent’s own 70 times.
What’s next? Tencent is reported to be looking for a second bite of the cherry by spinning off Tencent Music, commonly known as QQ Music. According to media reports, Tencent has invited investment banks to submit proposals for a US$1 billion listing in either Hong Kong or New York early next year.
The music company, of which Tencent owns 62.45%, has an active user base of 700 million, five times that of Spotify, which has 140 million. Only 2.5%, however, of Tencent Music’s base is paying customers.
No worry, anything with a Ma’s blessing will rise, and that seems to be the market axiom for how people are making big money these days.