This photo shows a signage in a courtyard at Kuaishou Technology headquarters in Beijing on Feb 3, 2021. (PHOTO / BLOOMBERG)
Kuaishou Technology, the operator of the Chinese mainland's most popular short-video service after ByteDance Ltd’s Douyin, jumped 161 percent in its Hong Kong debut after a US$5.4 billion initial public offering that attracted hundreds of billions of dollars of orders.
The shares closed at HK$300 after rising to as high as HK$345, compared with the IPO price of HK$115, valuing the Tencent Holdings Ltd-backed firm at US$159 billion. The company sold shares at the top of its price range in a deal that ranks as the world’s biggest internet IPO since Uber Technologies Inc’s US$8.1 billion US share sale in May 2019.
It is crazy. Investors are hunting for quick returns, pushing the price to this level. It’s a matter of time before the stock retreats to its reasonable price, which is at around HK$280.
Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong
Shares of Kuaishou — a key rival of ByteDance, the company behind short-video app TikTok — proved wildly popular among retail investors in Hong Kong. Luo Cheng, a seasoned retail investor, told China Daily that she put up HK$2 million in cash and margin financing to bid for 20,000 shares, only to come up empty.
“I put almost all the cash in my bank account into the subscription to the point that I have to rely on a credit card to buy items”, said the disappointed retail player. “It’s becoming increasingly hard for retail investors to win the lot for IPOs. It used to be easy in 2018 or 2019, until last year, when you needed to subscribe to at least 200 board lots to secure one. And for Kuaishou this year, the number surged to 500,” Luo added. “From now on, it has become a competition of how much money you have.”
“It is crazy,” said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong, citing the spike in Kuaishou’s share price. “Investors are hunting for quick returns, pushing the price to this level.” Pang added, “It’s a matter of time before the stock retreats to its reasonable price, which is at around HK$280.”
ALSO READ: Kuaishou surges 181% in HK gray market trading
The hot-red gains of the most-subscribed stock buoyed the market’s sentiment and performance, contributing 15 percent, or HK$37 billion, to Friday’s total turnover in the stock market. As a result, Hong Kong stocks had a winning week, logging the weekly rally to about 3.6 percent at the close, nearly recouping all of the losses from the previous week.
“The bull market is likely to be prolonged”, Pang said, citing the strong inflow capital from the Chinese mainland. “The Hang Seng Index is likely to draw a new record in the near term, surpassing the 33,484 that it reached in 2018.”
The coming-out party earlier this week of the Beijing-based company set several records in the city in the number of retail investors involved in the subscription and the amount of money pledged in the process. About 1.4 million mom-and-pop investors, or 1 out of every 5 people in the city, swarmed in to oversubscribe the IPO by 1,200 times. A combined amount of HK$1.28 trillion was poured into the pool, leaving an investor a 1-in-500 chance to get 100 shares, according to the Hong Kong Stock Exchange.
“I’ll still bid on upcoming IPOs, such as Bilibili and TikTok, but I need to consider hunting for institutions providing a lower margin interest”, said Luo, “although it’s objectively pointless for retail investors to compete with more and more investment institutions over a shrinking portion of shares.”
Breaking records
Kuaishou’s coming-out party broke records in Hong Kong for the number of retail investors subscribing to its shares and the amount pledged in the process. About 1.4 million mom-and-pop investor – one of every five people in the city – submitted HK$1.26 trillion (US$163 billion) of orders, while institutional buyers stumped up almost US$200 billion.
READ MORE: Kuaishou to give Asian IPOs best start to a year since 2010
The demand matched the frenzy for the Hong Kong leg of Ant Group Co’s mega IPO, which drew in HK$1.3 trillion of bids for its retail tranche, before the planned US$17.2 billion offering collapsed.
“Growth tech companies are still very much in demand,” said Gary Dugan, chief executive officer at the Global CIO Office in Singapore. “With the world still struggling with the COVID crisis, investors remain focused and investing more in tech stocks that have a strong growth story. Hence, we expect demand for these types of IPOs to remain strong and likely early trading share price premiums to tend to be extraordinary.”
Kuaishou’s coming-out party broke records in Hong Kong for the number of retail investors subscribing to its shares and the amount pledged in the process
Billionaires
Founded by former Google employee Su Hua and Cheng Yixiao as an app built around sharing animated GIF images, Kuaishou pivoted to short video in 2013 and added live streaming in 2016, landing footholds in what eventually became two of the hottest social media formats in the world.
With the pop, Su’s net worth rose to US$18.7 billion, while Cheng was worth US$13.1 billion. The fortune of two other company executives got boosted to more than US$2.7 billion each.
The firm had 264 million average daily active users on its main Kuaishou app as of November, 2020, according to its prospectus, less than half the 600 million on Douyin. Still, it’s been growing fast.
Revenues climbed 49 percent to 40.7 billion yuan (US$6.3 billion) in the first nine months of last year, after the company ratcheted up monetization efforts through advertising and e-commerce. While Kuaishou offers free access to its main platform, the startup takes a cut of the tips users give to their favorite live-streamers who perform viral challenges, lip-synch to the latest pop songs and play video games.
“Kuaishou’s business model is unique and there’s a certain degree of stickiness in the user base” because the content providers are from rural areas, said Kerry Goh, chief investment officer at Kamet Capital Partners Pte, which participated in the IPO. “Investors are prescribing a huge premium to businesses that are unique in this low interest rate environment.”
xinlanzeng@chinadailyhk.com
With Bloomberg inputs