Tencent's China Literature shares surge 86% on debut

(From left) China Literature president Shang Xuesong and co-CEOs Liang Xiaodong and Wu Wenhui, at the company's listing ceremony at the Hong Kong stock exchange. Demand for the IPO was such that retail investors bid for 625 times the shares on offer.
(From left) China Literature president Shang Xuesong and co-CEOs Liang Xiaodong and Wu Wenhui, at the company's listing ceremony at the Hong Kong stock exchange. Demand for the IPO was such that retail investors bid for 625 times the shares on offer. Formed in 2013, the e-book platform offers 9.6 million literary works from 6.4 million authors.PHOTO: BLOOMBERG

IPO's success a sign that HK exchange has raised its game

HONG KONG • Tencent's e-book unit China Literature saw its shares surge by more than 80 per cent in their debut yesterday, as Hong Kong investors embrace a rush of tech listings, marking the biggest first-day gain for a large initial public offering (IPO) globally this year.

The company's stunning debut has shown that Hong Kong has raised its game as it strives to compete with the New York and Nasdaq exchanges - the more traditional home for Chinese tech IPOs seeking to attract international investors. China Literature's shares doubled to HK$110 in early trade, versus its offering price of HK$55.

The shares closed at HK$102.4, gaining 86.2 per cent on the day and giving the company a market value of almost US$12 billion (S$19 billion).

Before China Literature, the biggest first-day pops of the year belonged to Snap, the US social media platform, and Shanghai-listed Caitong Securities.

Each gained 44 per cent on debut, according to Thomson Reuters data based on any company raising more than US$500 million.

"As the first Tencent-controlled subsidiary tapping capital markets, China Literature has to perform well in the secondary market to set a good example for other Tencent units," said an institutional investor who took part in the IPO, declining to identified as he was not authorised to speak to the media.

But while many investors cheered the stock, others noted that yesterday's valuations for the Tencent Holdings unit were stretched.

But while many investors cheered the stock, others noted that yesterday's valuations for the Tencent Holdings unit were stretched.

Company executives project a net profit of 400 million yuan (S$82 million) for this year and 1 billion yuan for 2018, according to investors who attended IPO road-show meetings. That implies China Literature is trading at 197 times its forecast 2017 earnings and 79 times its 2018 projections, versus Tencent which is trading at 51 times its 2017 forecast profits.

Co-chief executive officer Liang Xiaodong told reporters after the opening bell ceremony that the stock's surge was a pleasant surprise. "Going forward, we will conduct M&As and forge strategic alliances... in a bid to stay ahead in our industry," he said.

China's biggest e-book platform offers 9.6 million literary works from 6.4 million authors. Tencent began e-book publishing in 2004 and after an internal reorganisation, formed the basis of China Literature in 2013.

Demand for the IPO, which raised US$1.1 billion, was such that retail investors bid for 625 times the shares on offer - tying up HK$521 billion (S$91 billion), equivalent to a fifth of Hong Kong's cash in circulation, as they waited to see whether their offers would be accepted.

The IPO's success comes as the number of tech offerings in Hong Kong is picking up. Online insurance group ZhongAn raised US$1.5 billion in September in Asia's biggest financial technology IPO. Its shares jumped 18 per cent in their debut.

"Our team expects to see an increasing number of technology-related issuers in the coming months," Ms Amy Lo, a partner at Clifford Chance, adviser to China Literature's underwriters, said in a statement.

Razer, a gaming hardware maker backed by Hong Kong billionaire Li Ka Shing as well as Intel Corp, will make its Hong Kong debut next Monday. It has priced its HK$4.12 billion IPO near the top end of its price range, Thomson Reuters publication IFR reported on Tuesday.

But even so, for many Chinese tech firms, the United States market remains more attractive.

Sogou, China's second-largest search engine, which is 45 per cent owned by Tencent, is due to begin trading today after pricing an IPO of up to US$585 million yesterday.

Tencent owns 62 per cent of China Literature, while Carlyle Group holds 12.2 per cent. A further 6 per cent is owned by Trustbridge Partners.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 09, 2017, with the headline 'Tencent's China Literature shares surge 86% on debut'. Print Edition | Subscribe