IPOs: Uxin Files in NY, Battery Maker in China, Mindray on ChiNext
Bottom line: New listing plans by used car platform operator Uxin, EV battery maker Amperex and medical device maker Mindray should all do well, driven by strong growth potential and their leading positions in China.
The latest IPO season for Chinese firms is kicking into high gear on both sides of the Pacific, with announcement of several hot new offerings that each has a slightly different story to tell. At the head of the class is a new listing for used car platform operator Uxin, which is aiming to raise up to $500 million in New York.
That’s followed by a listing plan for electric vehicle battery maker Amperex, which is having to settle for a sharply-lower valuation than it had been originally seeking with a listing in China. Last but not least there’s medical device maker Mindray, which de-listed from New York and has just submitted a plan to list on China’s enterprise-style ChiNext board, after its initial plan to re-list on one of China’s larger main boards was rejected.
As I’ve said above, each of these IPOs has a slightly different story to tell. But added up, they do show that activity is starting to pick up heading into what’s likely to be a very busy summer. That upcoming listing wave is likely to peak with the Hong Kong IPO for smartphone maker Xiaomi, which could raise about $10 billion, becoming the world’s biggest high-tech listing since Alibaba (NYSE: BABA) raised a record $25 billion four years ago.
Let’s dive right in with Uxin, which is probably the most straightforward of this trio of new listing plans. (Chinese article) The company is one of a group of specialists that are capitalizing on the flood of used cars coming into China’s second-hand market, alongside other names like Tencent-backed (HKEx: 700) Renrenche and Alibaba-backed Souche.
The company’s $500 million fund-raising target is a bit lower than an earlier one of $800 million mentioned in some reports late last year, indicating perhaps investors are slightly worried about the stiff competition in this emerging segment. Right now the only similar listed specialist is AutoHome (NYSE: ATHM), whose shares have risen nearly five-fold over the last two years. That could bode well for this new offering when it hits the market, most likely in June or July.
Battery Maker Low on Juice
Next there’s the Amperex listing, which has priced at 25.14 yuan ($4) per share and values the company at about $8.5 billion. (English article) The most noteworthy thing about the latest news surrounding this company, the world’s largest EV battery maker, is that the valuation is sharply lower than the $20 billion the company had been seeking at the end of last year.
That big shortfall owes to a number of reasons, including declining margins in this increasingly competitive space. But one of the bigger constraints comes from technical issues that cap valuations for Chinese companies at particular price-to-earnings ratios before they make domestic listings under local listing rules.
As a result, investors often pile into such offerings with the knowledge that they will rise sharply to higher PE levels once trading begins. I expect that will probably happen with Amperex, and wouldn’t be surprised to see the company’s stock at least double and possibly rise by even more when trading begins due to its status in a hot area with big growth potential.
Finally we’ll close with Mindray, which was one of several dozen Chinese firms to privatize from New York around 2015 due to lack of local investor interest that resulted in depressed valuations. A growing number of those companies have re-listed in China and gotten much higher valuations in the market, where their names are more familiar and investors are also much more speculative in general.
Mindray originally applied to list on one of China’s main boards, but had that plan rejected due to failure to meet one rule regarding the amount of goodwill on its balance sheet. So now it’s going to the ChiNext board for smaller growth companies, and has managed to reduce the goodwill ratio to just below the 20 percent threshold of total assets required by the regulator. (Chinese article)
The company’s profit growth looks quite solid at 58 percent last year and its business mix also looks good, at about 50-50 between domestic and foreign sales. The China portion of its sales appears to be climbing, on the nation’s ongoing overhaul of its health care system, which should be good for business over the mid-term. All things considered, the listing looks like it should get a positive reception, and is likely to follow in the footsteps of others that have gotten significantly higher valuations by leaving New York and re-listing at home.
