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NetEase's prospectus is now priced! How much can I earn by starting a new one?
Wenjing
According to Hong Kong media reports, NetEase closed its public subscription at noon today (June 5) and completed the pricing of Hong Kong stocks. At this point, whether it's NetEase, JD, or Baidu, which may go public for a second time in the future, they have broken up new horizons outside of the main battlefield of US stocks.
NetEase may be priced at HK$123 per share
Short selling is possible on the day of listing
According to Hong Kong media reports, on the afternoon of June 5, NetEase's second public subscription for the Hong Kong listing was officially closed. According to market sources, NetEase will be priced at HK$123 per share, a discount of about 2% compared to the closing price of US stocks the day before. Meanwhile, the Hong Kong Stock Exchange announced today that when NetEase is listed, the Hong Kong Futures Exchange will launch NetEase stock options and futures contracts. NetEase's first-day listing on June 11 is eligible for short selling.
According to reports, NetEase did not set a lower pricing limit for its second listing in Hong Kong. The upper price limit for this public sale is HK$126, and institutional investors can offer a price higher than HK$126 during the offering period. The company made a decision after taking into account factors such as the closing price of American Depositary Shares traded on or before the last trading day and investor demand during the roadshow process.
Based on information from various brokerage firms, NetEase's public offering has received over 100 times more subscriptions. Therefore, according to the return mechanism set by NetEase and as described in the prospectus published in Hong Kong, NetEase's share of the Hong Kong public sale portion will increase from 3% to 12%, which has reached the return limit. However, in the international placement section, it was also oversubscribed, and several international long-term funds that rarely participated in IPO projects also participated in this subscription process.
NetEase said that the company plans to use the net capital raised from this offering for global strategies and opportunities, to promote the continuous pursuit of innovation, and for general corporate purposes. At the same time, the funds will also be invested in enriching and enhancing NetEase's innovative content, introducing commercially viable technology into specific applications, optimizing the user experience, attracting and cultivating talents, and supporting innovation and growth.
According to an announcement issued by NetEase on June 1, the offering consists of the public sale of 5,150,000 newly issued shares in Hong Kong and 166,330,000 newly issued shares sold internationally, 3.0% and 97.0% of the total number of shares sold respectively. According to the level of oversubscription in Hong Kong's public offering, and based on the rebate mechanism described in the prospectus published in Hong Kong, the total number of shares available for subscription in Hong Kong can be adjusted to a maximum of 20,580,000 newly issued shares, accounting for about 12.0% of all initial shares issued in this issue. In addition, NetEase expects to grant over-allotment rights to international underwriters, which may require the company to issue up to 25,722,000 additional new shares under international sales, not more than 15.0% of all initial shares issued this time.
On the evening of June 4th, ChinaShandong ExpresswayFinance (00412) also issued an announcement stating that it intends to subscribe for distributed shares sold by NetEase International, with a subscription amount not exceeding 60 million US dollars.
As of the closing of the US stock market this morning, Beijing time, NetEase reported $405.01 per share, down 2.31% from the previous trading day, with a market value of 55.6 billion US dollars.
In 2000, NetEase was listed on the US NASDAQ, and was one of the first batch of Internet securities to enter the US stock market. In October 2019, NetEase Youdao, a subsidiary of NetEase, was listed on the New York Stock Exchange. After listing in Hong Kong, NetEase will become the only Internet company in the world whose parent company and subsidiary businesses are listed simultaneously on the NYSE, NASDAQ, and Hong Kong Stock Exchange.
Also, according to people familiar with the matter, NetEase CEO Ding Lei may soon start a live broadcast to bring goods carefully to NetEase. The earliest time is probably next week. Currently, NetEase is negotiating cooperation with leading short video platforms such as Kuaishou and Douyin.
The market is concerned about valuation issues
Affected by the global pandemic, global financial and capital markets have been impacted, causing major fluctuations. In particular, the spread of the epidemic overseas has brought many uncertainties to corporate investment and financing. Furthermore, the US stock market policy is being tightened and regulations are gradually becoming stricter, which will inevitably have an impact on the valuations and stock prices of Chinese securities companies.
Shen Meng, executive director of Chanson Capital, said that unlike previous claims that China securities were generally underestimated, there was not much difference in valuation between Hong Kong, China, and the US.
In comparison, NetEase's US stock and Hong Kong stock pricing. In June 2000, NetEase was listed on Nasdaq at an opening price of $15.3. In 20 years, NetEase's stock price climbed to $397.59 (as of June 1, US time), an increase of nearly 27 times. In this second listing, Hong Kong media quoted sources as saying that NetEase will be priced at 123 yuan per share, which is equivalent to HK$125.55 compared to the closing price of NetEase's US stock on Thursday, which is HK$2.55 cheaper. The total amount raised was approximately HK$21 billion. However, each American depository stock ADS represents 25 common shares, which is about 406.25 US dollars for US shares. There is not much difference between the two places.
Another example is Alibaba, the first Chinese securities company to be listed twice in China. The total value of the US stock market is 554.17 billion US dollars, and the total value of the Hong Kong stock market is 4.29 trillion Hong Kong dollars, or about 553.75 billion US dollars. There is no obvious gap between the two.
An industry insider said that the so-called undervaluation of China Securities mainly depends on who it is compared to. Compared with A shares, the valuation of China Securities is definitely low. In other words, the valuation of A-shares is generally too high, which can fully reflect the value that Chinese securities should have.
Regarding the current popularity of NetEase subscriptions, Hong Hao, managing director of BOC International, warned that this is not the same as having huge room for stock prices to rise after listing. Judging from the NetEase target price given by analysts, the average price is 437 US dollars/share. Based on ADS representing 25 Hong Kong stocks per share, assuming that the NetEase listing price is HK$126, then the potential average increase is 8%. If NetEase were to rise 6% on the first day of listing (see Alibaba's performance on the first day of listing). In the short term, NetEase's strength in the gaming sector alone can indeed attract market attention, but medium- to long-term valuation expansion still needs to rely on the four major strategic plans of “gaming, e-commerce, education, and music” to bring new growth points.
Referring to the company's current operating situation, Hong Hao pointed out that NetEase's performance in the first quarter of 2020 exceeded expectations. Total revenue was 17.1 billion yuan, an increase of 18% over the previous year. It exceeded market expectations by 9%, and has maintained revenue of more than 10 billion yuan for eight consecutive quarters. Gaming, YouDao, and Innovation businesses grew 14%, 140%, and 28% year over year. Both mobile and mobile game revenue exceeded expectations. Hong Hao said that it is expected that more diverse game combinations will be launched. He is optimistic about the strength of its game potential products and expansion space in overseas markets. The online education market is improving, and Cloud Music will also benefit from the exclusive copyright issue and have more room for development.
Hong Kong is becoming a safe haven for Chinese securities
NetEase is not the only Chinese securities company that recently chose to go public in Hong Kong for the second time. According to Hong Kong media, JD Group also passed the Hong Kong Stock Exchange listing hearing today. It is expected to go public on June 18 and raise about 3 billion US dollars (about HK$23.4 billion). Furthermore, 19 equity prospecting companies, including Baidu, Good Future, and New Oriental, have been revealed to have met the conditions for a second listing, or are currently discussing within the company whether to proceed with a second listing.
On the evening of Thursday (June 4), Li Xiaojia, CEO of the Hong Kong Stock Exchange, said, “Many Chinese companies listed in the US may be listed on the Hong Kong Stock Exchange this year. This year will be an important year for IPOs. This includes not only large-scale IPOs from China, but also many companies returning from the US.”
The Nasdaq Exchange recently introduced restrictions on Chinese companies listed in the US. This will make it more difficult for some Chinese companies to go public on the NASDAQ, and also make it possible for some listed Chinese securities stocks to launch a second listing plan. Li Xiaojia said, “The reason many Chinese companies listed in the US are listed in the US is because they cannot go public in Hong Kong. Until the new IPO regulations were announced recently, the Hong Kong Stock Exchange had stricter requirements on issues such as corporate governance and dual equity structures. But all the big companies we know that are interested in returning have met the listing criteria.” He emphasized that this includes technology companies. He said that a first or second listing in Hong Kong would bring these companies closer to their main customer base. Currently, US policy is being tightened, and we have fundamentally reformed many aspects of the listing system, making us more flexible.
Hong Hao, managing director of BOC International, believes that the return of China Securities Securities will make Hong Kong stock companies more diversified, and the market value structure of the industry can be further optimized. The potential return of Chinese securities is concentrated in fields such as technology, the Internet, and consumption, which will increase the share of “new economy” companies in the Hong Kong stock market. Furthermore, expanding the Hong Kong stock market will also help increase its attractiveness as a financing market and further attract more listed companies and investors. The return of Chinese securities will help revitalize Hong Kong stocks, attract more capital to Hong Kong and participate in transactions, thereby consolidating Hong Kong's leading position in the global equity financing market.
Shen Meng, executive director of Chanson Capital, said that whether it's NetEase, JD, or Baidu, which may go public for a second time in the future, they have opened up a second market outside of the main battlefield of US stocks. A second-place listing in Hong Kong is an option during a special period. It is possible to make it easier for mainland investors to participate in transactions through listing in Hong Kong. As uncertainty about the external environment still exists, more Internet companies will choose to go public in Hong Kong for a second time. The addition of a new market not only shares the risks of the US stock market and forms a hedge, but also increases financing opportunities, expands financing channels, and ensures abundant corporate cash flow and sustainable strategic development.