Xiaomi joins Tencent among Hong Kong’s 10 most valuable companies with US$54 billion market cap

Xiaomi’s shares surge after index compilers FTSE Russell and Hang Seng Indexes Company include it in their widely tracked indices

PUBLISHED : Tuesday, 10 July, 2018, 12:43pm
UPDATED : Tuesday, 10 July, 2018, 11:16pm

Xiaomi staged a dramatic turnaround on its second day of trading.

The smartphone maker’s market capitalisation surged to HK$425 billion (US$54.2 billion), breaking into Hong Kong’s top 10 companies, after the stock was added to widely tracked the FTSE China A50 Index, and the Hang Seng Composite Index, which could allow mainland investors to buy the stock via the Stock Connect schemes as soon as this month.

Shares of Hong Kong’s first listed company with a dual-class share structure quickly rebounded on Tuesday to as much as HK$19.34. It closed at HK$19. On its debut on Monday, it fell 1.2 per cent below the offer price of HK$17.

“The turnaround was quite surprising as it was just the second day of trading and the fundamental has not changed at all,” said Linus Yip, chief strategist for First Shanghai Securities. “It’s mainly due to short-term capital inflows, after it was added to FTSE and HSCI indexes, prompting some funds to chase it before the additions take effect.”

Yip said the FTSE China A50 Index is tracked by many passive ETFs, which means they will have to rebalance their portfolios to accommodate the change.

The share surge has helped Xiaomi break into Hong Kong’s top 10 most valuable listed companies, a league that includes Tencent Holdings, HSBC, China Mobile, AIA, and China Construction Bank. Xiaomi ranks No 9 at its current market cap, ahead of Bank of China (Hong Kong).

The turnaround surprised Lei Jun, founder and chief executive of Xiaomi, as well.

“It’s like a dream, these two days … ” Lei said on his Weibo account after Tuesday’s market close.

“The IPO experience, these two days, has made us more grateful. We thank those who have trusted us and supported us! In the meantime, it has also made us more confident and [we will] stick to our own ways – building amazing products that touch the hearts of our users, maintaining honest pricing and letting everyone in the world enjoy a better life through innovative technology.”

Lei had earlier admitted during a dinner with investors that he felt “stressed” after seeing the company’s stock fall below its offer price, on its trading debut in Hong Kong, and promised those who bought the stock on the first day that it would “double what they had invested” some day, Beijing News reported on Monday.

Trading volumes also soared, with more than HK$9.8 billion worth of shares changing hands on Tuesday, 27 per cent higher than the HK$7.7 billion on Monday.

The change in fortunes came after index compiler FTSE Russell announced that it would include Xiaomi in a number of its indexes with effect from July 16, including FTSE China A50 Index, which is tracked by nearly US$7 billion worth of funds globally. Consequently, it will remove US sanctions-hit ZTE from the FTSE China A50 Index.

On Monday afternoon, the Hang Seng Indexes Company also said that it would add Xiaomi to the Hang Seng Composite Index (HSCI) with effect from July 23. The HSCI family has more than 400 constituents, covering over 90 per cent of Hong Kong stock exchange’s market capitalisation.

As a constituent of the HSCI, mainland investors will be able to buy Xiaomi shares via the Stock Connect programme, provided Chinese authorities grant approval.

Xiaomi sputters in Hong Kong debut as trade war snares test case of city’s listing reform

Macquarie, which issued a research report on Monday, set Xiaomi’s target price at HK$30, as it expects the company’s earnings per share to post a compound annual growth rate of 40 per cent between 2018 to 2020.

The investment bank’s analysts said Xiaomi can monetise its large number of active users via various internet services, such as online games, apps, ads, which could be its biggest strength compared to its peers.

The company can benefit from rising profit margins in internet services business for the next three years and its continued smartphone sales growth in India, Europe, and Chinese markets, they added.

Xiaomi has 190 million monthly active users for its mobile operating platform, according to the company’s founder and CEO Lei Jun.

Is Xiaomi’s deflated IPO a bad start for Hong Kong’s new economy listings push?

Xiaomi fell below its offer price on Monday, after its much-anticipated IPO received a lukewarm response amid a weak market, as the company’s categorisation of “internet firm” and valuation sparked a close examination by investors and regulators.

Index compiler MSCI said last week it will not add Xiaomi to its benchmark index because the company does not meet the criteria due to its weighted voting rights (WVR) structure. WVR, also called dual-class shares, allows a company’s founders or executives to have control even if they have minority shareholding.