SHARES of Chinese appliance maker Midea Group rose in their Hong Kong debut after the city’s biggest listing in three years saw robust demand and revived hopes of a turnaround for its struggling market.
The stock jumped as much as 9.5 per cent from its issue price to HK$60 in early trading. The offering was priced at HK$54.80 apiece, the top end of the marketed range. The Foshan, China-based company’s US$4 billion upsized listing is Hong Kong’s biggest debut since Kuaishou Technology’s US$6.2 billion offering in early 2021.
The market has been pinning hopes on the much-feted deal after initial public offering (IPO) volumes in Hong Kong slumped in recent years against the backdrop of China’s economic struggles. Subscription levels for Midea, China’s largest appliance maker whose brands include Comfee and Eureka, showed sizeable demand still exists in the city for stocks with established business lines – and offered a glimmer of hope for investor confidence.
Midea sold 566 million shares after exercising an option to boost the size of the offering by 15 per cent due to demand, it said. The international portion, which represents 95 per cent of the offer, was subscribed more than eight times before taking into account the offer size adjustment option, it said in a filing.
Midea’s top-of-range pricing “indicates investors’ strong demand for liquid names in the China home appliance sector,” Citigroup analysts Xiaopo Wei and Vincent Young wrote in a note.
The company, founded in 1968, sells air conditioners, washing machines, elevators and other products. Some of the share sale proceeds would be used to expand its global distribution channels and sales network to boost overseas sales, it said. Midea’s shares are already traded in Shenzhen.
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Midea’s Hong Kong debut may be arriving at an opportune time for the company. Home appliances are Citi’s most preferred sector among China’s consumer discretionary industries in the second half of this year given “higher earnings visibility”, the Citi analysts wrote.
Second-half sales growth could accelerate as the Chinese government continues to promote its “trade-in” policy, in which consumers and businesses are encouraged to upgrade existing appliances and equipment. “We expect the ‘Trade-in’ policy to cover all China provinces by October,” the Citi analysts wrote in another note.
Growing numbers
Midea’s listing has pushed Hong Kong IPO proceeds to US$6.5 billion this year, more than the total volume in all of 2023 but below bumper levels in past years, according to data compiled by Bloomberg. IPOs in the Asian financial hub generated an average 2.1 per cent gain on their first day of trading this year.
The listing’s cornerstone investors – who generally commit to keeping shares for at least six months – have agreed to buy US$1.26 billion of its stock. They include a subsidiary of container shipping company Cosco Shipping Holdings and a unit of UBS Asset Management.
Midea offered a roughly 20 per cent valuation discount to its stock price in Shenzhen before the deal launched. After the debut in Hong Kong, the deal size could be increased to US$4.6 billion later if an overallotment option is exercised.
In recent years, a handful of mainland-listed companies have come to Hong Kong for a subsequent listing, including China Tourism Group Duty Free and Tianqi Lithium. Midea could pave the way for more of such listings in Hong Kong, said Sharnie Wong, an analyst at Bloomberg Intelligence who covers the city’s stock exchange.
“A more material rebound in listings might not come until stock market sentiment recovers,” Wong said. BLOOMBERG
