Next week is the moment we’ve all been waiting for in the Hong Kong IPO market. In stock trading terms, it’s been eons since People’s Insurance Corporation of China (PICC) floated in December, the last megalisting. Those shares have stayed above their listing price but failed to revive broader interest in the market as Hong Kong lags far behind other major markets for IPOs this year. The market has another shot at rebirth next week with the listings of China Galaxy Securities (6881.HKG) on May 22 and Sinopec Engineering Group (2386.HKG) on the following day. The scene could not be set better: Cornerstone investors and retail subscriptions have been strong. The companies have both priced their shares so that they are valued below the average for their respective industries, said Jasper Chan, a senior corporate finance officer who follows IPOs for Philip Securities in Hong Kong. Chan says he expects the stock price to rise out of the gate for both issues. These shares should be more for medium- to long-term investors rather than those looking for an initial pop because they’re more mature companies with proven revenue, unlike the early stage companies that often find their way to IPO. Investors might consider buying in but at the very least should keep a close eye on these issues for signs of what’s to come for IPOs in the rest of the year.
Ho hum for Hon Hai
This week, investors may have been left with very disparate impressions of earnings results at Hon Hai Precision Industries (2317), the main listed subsidiary of the company that often operates under the name Foxconn Technology Group, depending on what news sources they read. This is a very basic question: Did Hon Hai’s earnings miss expectations as Bloomberg says or did it surpass them as The Wall Street Journal writes? Alberto Moel, a Hong Kong-based analyst for Sanford C. Bernstein, says that the difference comes down to the surveys done of analyst estimates. Taiwan companies issue revenue on a monthly basis with the first three months long since reported. So all analysts have to do is plug it into their models and, voila, they have a much better estimate of what profits will be for the first quarter. The Bloomberg survey appeared to include estimates from analysts who had not updated their models with the new revenue figures, Moel said. The Wall Street Journal survey, although of fewer analysts, is likely the more accurate. So does it matter? The stock didn’t move much, only trading down about 1.3% as of market close Wednesday before rebounding slightly Thursday. To Moel, the story on Hon Hai remains the same: Flagging orders from Apple (AAPL.NASDAQ) will hold back revenue growth but profit margins will continue to improve as it passes on more costs to customers and improves operations. Investors are likely to see gains on the stock price throughout the rest of the year.
Just playing around
If occasionally chatting with random strangers wasn’t enough entertainment for users of Tencent Holdings’ (0700.HKG) WeChat, the internet giant said this week that it was developing games for the messaging service. Adding a play option to what is already China’s most popular messaging application is an early attempt to monetize the service as the company battles with Sina (SINA.NASDAQ) and its Twitter-like Weibo service for users’ attention. Tencent is the top internet industry pick of Barclays Research, although the bank said that there was no clear timeframe for monetizing WeChat via online games. Despite Tencent’s optimisim for the games, the launch could be premature. “I think it’s pretty early to add games to this service,” said Mike Chen, an internet analyst at China Merchants Securities in Shenzhen. Chen follows US-listed Chinese internet firms such as the social media network Renren. The network introduced games at an early stage, but the attempt at monetization never panned out, Chen said. There are better reasons to buy Tencent, however. Profit in the first quarter jumped 37% to US$657.7 million as its various revenue streams such as ecommerce, video and microblogging continue to grow, according to Barclays. The takeaway: Tencent is a good buy with or without the games.
With all eyes on China Galaxy and Sinopec Engineering, the next IPO in Hong Kong won’t be until Great Eagle Holdings (0041.HKG), the owner of the Langham hotel chain, which is slated to list at the end of the month.
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