Shanghai-based Linktone, a mobile phone value-added services provider, has completed its 6.14 million ADR issue above its indicative price range. The company raised $86 million after pricing its deal at $14 on Wednesday US time, two dollars above the top of the range.
Proceeds could rise to $99 million after the exercise of the greenshoe. One ADR equals 10 shares.
The Credit Suisse First Boston led deal closed 15 times oversubscribed despite a 10% cap per order. Aside from heavy oversubscription, the deal also attracted strong international demand. Specialists say about 30% of the deal was placed with international investors compared to the more usual 15% to 20% seen for US only listings.
"Investors really like the sector and the China story," says one specialist, adding that broader market sentiment was perhaps more important than company fundamentals.
He adds that the offering was priced at 25 times forecast 2004 earnings, a 15% discount to NetEase and a 30% discount to Sina - though without explicitly giving an earnings forecast for Linktone. The three US-listed portals - Netease, Sina and Sohu - all floated during dotcom boom on the basis of short or non-existent earnings track records. Over the past year, they have reported extraordinary growth, with Sina's share prices zooming up over 640% and the others trailing not far behind.
However, some say they are not perfect comparables.
"Linktone is a pure wireless play, and as such could become a benchmark for the sector," says Wei He, a consultant at Beijing-based technology research firms BDA.
The portals rely on a more diversified business model including online advertising and have only lately entered the wireless data space. Linktone by contrast has focussed on this space from the start, BDA's He says.
However, Sina and Sohu are increasingly relying on wireless data, although they are also looking at online gaming - Netease's speciality - and search functions as future revenue generators.
SMSs are the most obvious wireless data services on sale, but companies are now also moving into more sophisticated offerings called Interactive Voice Response, which involves the downloading and group usage, via the phone, of music and ring tones, multi-player games, dating services and advertising, as well as sending traditional text messages, but with added colours, fonts and sounds.
"Linktone doesn't have that massive online user base of the established portals as yet," points out He, which could be a disadvantage for the newcomer, since it needs to rely on heavy off-line promotion to attract users. All three portals and Linktone work closely with China Mobile, whose mobile platform Monternet links up numerous service providers to customers.
The involvement of China Mobile has also enabled the portals to crack the difficult nut of revenue collection. Due to low credit card penetration in China, it was historically difficult for portals to collect funds for their services.
Now, however, users can go to websites of any of the companies and select a service, such as a picture or ring tone, which is sent to their mobile phone by China Mobile. The cellular giant then gathers the revenue from the buyers by charging their mobile phone accounts and sends the revenue minus 15% commission back to the portals.
This arrangement was they key to unlocking profitability at the companies during 2002. Rapid mobile growth has underpinned the hot performance of these companies. China has almost 200 million mobile phone users.
Sina's net profit jumped six-fold to $9.3 million in the last quarter of 2003. Netease saw quarterly net profit double on the back of online gaming, which is overtaking text messaging as the main growth driver.
However, there are signs the market is maturing. Sina's non-advertising revenue, which accounts for two-thirds of all revenue, is forecast to grow at 150% in the first quarter, less than half the rate in the previous quarter.
The stocks of all the incuments are well off their year-highs, partly thanks to Sohu.com reporting fourth quarter revenue at the low end of the forecast.
Tomonline, which has a similar business model, is due to price a GEM and Nasdaq listing today (Friday).