Hong Kong IPO market sentiment is seeing signs of improvement as Midea Group is trading well after a mega listing and China has introduced a spate of monetary stimulus measures to revive the world’s second-largest economy and its stock markets.
Chinese kitchenware products maker Carote on Wednesday closed books early for its Hong Kong IPO of HK$751m (US$96m) and priced it at the top of an indicative price range thanks to strong demand. China Resources Beverage (Holdings), which won listing approvals from both the Chinese and Hong Kong regulators in early August, on Thursday started pre-marketing a Hong Kong IPO of US$500m–$1bn after staying on the sidelines for more than a month.
The stellar aftermarket trading of Shenzhen-listed Chinese home appliance giant Midea in Hong Kong, together with the recent strong run-ups in the Hong Kong and mainland China stock markets, have drawn investor interest back to the Hong Kong IPO market.
The strong response to the Carote deal highlights the shift in sentiment. While IPOs of such size in recent years have mainly been supported by friends and family orders, the Carote float drew upbeat demand from institutional investors with the books multiple times covered.
Retail investors also flocked to the deal, placing orders totalling HK$102bn, or more than 1,350 times the amount of shares available in that tranche.
“We have expected a certain level of participation from institutional investors as Carote is profit-making and its IPO valuation is reasonable. The strong performance of Midea also shows investors that they can actually make good money from Hong Kong IPOs,” said a banker on the deal.
The Hong Kong shares in Shenzhen-listed Chinese home appliance giant Midea have performed well since its listing on September 17. The stock closed at HK$77.70 on Thursday, up 42% from the issue price of HK$54.80.
The HK$35.7bn listing, the world’s second-largest this year, has helped Hong Kong become the world’s fourth-largest IPO market so far this year, just behind the US (Nasdaq and NYSE) and India, according to LSEG data.
“The final demand level (for Carote) is way beyond our expectation. We are very lucky to have China announce the stimulus measures during our bookbuilding,” said the banker.
The People's Bank of China on Tuesday cut banks' reserve requirement ratio by 50bp and lowered the seven-day reverse repo rate to 1.5% from 1.7%. China will also set up a swap facility allowing qualified brokerages, funds and insurance companies to tap central bank financing for stock purchases, and is considering plans for a market stabilisation fund.
As of Thursday, China's CSI300 blue-chip index had gained 10.4% since Tuesday, while Hong Kong’s Hang Seng Index was up 9.2%.
Carote sold 130m primary shares or 24.3% of the enlarged share capital at the top of an indicative price range of HK$5.72–$5.78 each, representing a 2024 forecast P/E of 7.96.
Cornerstone investors Matrix Partners and Genesis Capital each took up US$20m of the deal.
The company posted a profit of Rmb88.5m (US$12.5m) for the first three months of 2024, up 58% from a year earlier.
Its shares will start trading on October 2. BNP Paribas and CMB International are the sponsors.
Peer gains
China Resources Beverage, the beverage unit of China Resources Holdings, is planning to wrap up its deal in October.
“The company aims to complete the IPO before the US presidential election and the recent stock market rallies provide a good window,” said a banker on the deal.
The surge in shares in larger rival Nongfu Spring is expected to benefit the IPO. The stock closed at HK$31.10 on Thursday, up 19.4% since Tuesday.
China Resources Beverage produces bottled water under the “C’estbon” brand and other beverages, including bottled milk tea, black tea and coffee.
It posted a profit of Rmb461m for the first four months of 2024, up 29% from a year earlier.
Bank of America, BOC International, Citic Securities and UBS are the sponsors.