Yixin adds to Hong Kong's tech IPO buzz

The Tencent and JD.com-backed vehicle-trading platform scores another big technology hit for the city as its share sale meets with overwhelming demand.

Car-trading platform Yixin Group is the latest high-performance Chinese startup to get investor pulses racing after it raised HK$6.8 billion ($867 million) from an initial public offering of shares that left fans wanting more – considerably more – and extends the Hong Kong stock exchange's hot streak.

The retail tranche was oversubscribed 560 times, triggering a clawback mechanism that expanded the retail portion to 307 million shares from an initial 87.8 million shares.

Sources familiar with the company said the institutional tranche was also oversubscribed multiple times across the entire marketed range of HK$6.6 to HK$7.7 per share, with more than 400 accounts placing bids – including sovereign wealth funds, long-only and hedge funds, high-net-worth individuals, and Chinese institutional money. 

Given the heavy demand the final offer price was unsurprisingly fixed at the top end of guidance at HK$7.7 per share, representing 19.5 times forecast 2019 earnings on a syndicate consensus basis.

Listing documents show Yixin posted a loss of Rmb6.11 billion renminbi ($920.5 million) for the six months to June-end – some 94 times what it lost a year earlier. Revenue over the same period grew to Rmb1.55 billion from Rmb455.8 million.

IPO sensation

Following on from ZhongAn Insurance last month and China Literature last week, Yixin is the third tech startup in quick succession to score a big IPO success, creating a buzz among both institutional and retail investors that hasn't been seen in Hong Kong for years.

There are a number of similarities between the three new listed companies – all are less than five years old, in the so-called new economy, and backed by prominent investors in the technology space.

Originally part of Chinese internet marketing firm Bitauto, Yixin was spun off in 2014 as an independent online trading platform for new and second-hand cars. It generated revenue mainly from advertising and subscription fees.

As the business grew, the company expanded into providing auto financing services, which now accounts for over half of its total income.

The company provides auto rental and sales services too, as well as auto financing and insurance through its own online platforms Taoche and Yixin Chedai, and facilitated over 300,000 retail transactions worth over Rmb29 billion ($4.4 billion) in the first nine months this year. 

In this, Yixin is able to leverage off its relationship with prominent pre-IPO investors to streamline and expand its business. For instance, it uses the massive customer databases of Tencent and JD.com for digital marketing purposes and to explore potential new markets.

Baidu, Oriental Asset Management, and IDG Capital are also early-stage investors in Yixin.

Shares in Yixin begin trading on Thursday. The IPO's joint sponsors are Citigroup and Credit Suisse

New thinking

The recent spate of new economy IPOs and their solid aftermarket performances – both ZhongAn Insurance and China Literature have seen their share prices rise strongly – is perhaps the new norm for Hong Kong’s IPO market, with investors eager to put money to work on the right equity story and business model. 

These elements have arguably become more important for prospective investors than traditional quantitative measures, such as near-term profitability and asset size, when it comes to determining a company's prospects and the value proposition of an IPO.

Fast-growing technology companies also do not seem to rely on large cornerstone investors through the IPO process, which eliminates the risk to small investors of controlled pricing and enhances liquidity in the secondary market.

So for the Hong Kong stock exchange, the recent spate of technology startup IPOs represents the best possible advertisement to the global investment community that the city remains a go-to listing venue for new economy companies – even without a proposed third board for high-flying technology firms.

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