IPOs: New Signs of Life in China, NY 上市：纽约、中国上市新迹象
News of 2 interesting new IPOs for Chinese companies, one in Shanghai and the other in New York, is an encouraging sign that spring may finally coming for a market still suffering through a long winter that has dragged on for more than a year. From the New York end, a social media website called YY has filed with the US securities regulator for an offering of up to $100 million, in what would become only the second major US listing for a Chinese company this year. (English article; Chinese article) Meantime, Southern Publishing has also filed with the Chinese securities regulator for an IPO, providing an interesting choice for media investors looking to tap into the company’s ties with one of China’s most ground-breaking media groups. (English article; Chinese article)
The overseas market for Chinese IPOs has been in a virtual standstill for about a year, as investors have shunned Chinese stocks following a series of scandals that exposed weakness in many companies’ accounting practices. Meantime, new domestic IPOs have also been largely on hold for a while, as the Chinese regulator stopped approving most new offerings to prop up the country’s sputtering stock markets.
Let’s take a closer look at the YY IPO first, which could soon be followed by other similar offerings if it’s even moderately successful. According to media reports, YY, whose Chinese name is Duowan, is a fast-growing company that allows users to set up “virtual stadiums” to quickly reach large audiences using a wide range of media, such as voice and video. YY’s revenue reached $51 million in the first 6 months of the year, nearly tripling from the year ago period. The company is still losing money, though its loss of about $17 million in the first half of the year was about half the level from the year ago.
The fact that the company is losing money will certainly dampen demand for this offering, though the fast revenue growth should mitigate some of that concern. YY probably wouldn’t be my first choice for a company to test whether investors are ready to buy China stocks again, mostly because of its status as both a money-losing firm and also a pure Internet play, meaning its figures are more easily manipulated than more traditional companies. Still, the growth story could be enough to convince at least some investors to buy the stock, and I predict the offering could be modestly successful, perhaps raising up to $75 million.
Southern Publishing is a bit earlier in the IPO process, but looks like another interesting offering mostly due to the highly fragmented nature of China’s publishing industry and also because of its ties to Southern Media Group, one of China’s most innovative and aggressive media companies. Southern Publishing has yet to release any financial information due to the early stages of this IPO, so it’s hard to say how profitable the company is. But I would expect to see some attractive numbers once the first financials are published, and for this IPO to be well received if and when it comes to market.
From a broader perspective, both of these IPOs will certainly test the appetite for new listings among investors who have done far more selling than buying over the last year due to economic uncertainties in China and the previously mentioned accounting scandals in the US. At the end of the day, both of the IPOs are likely to go forward, paving the way for more similar offerings in both the US and China. If YY is successful, look for online clothing retailer Vancl and the video business of web portal Sohu (Nasdaq: SOHU) to resuscitate their stalled IPO possibly by year end. Meantime, a successful IPO by Southern Publishing could pave the way for a more media IPOs in China over the next few months, including a planned IPO by Xinhua’s online unit, Xinhuanet.
Bottom line: Successful IPOs by Internet firm YY in New York and Southern Publishing in Shanghai lay the groundwork for an end to the current winter for Chinese company IPOs.
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