Meituan Dianping begins institutional order taking for up to US$4.4 billion IPO in Hong Kong, the city’s second major tech listing this year
But some analysts are a little concerned about its valuations and future growth
Meituan Dianping, China’s largest on-demand online service provider, has lined up US$1.5 billion from five cornerstone investors including Oppenheimer, Tencent, and Lansdowne Partners for its upcoming Hong Kong initial public offering (IPO), which could be worth up to US$4.4 billion.
The listing would be the city’s second blockbuster tech float this year after Chinese mobile phone maker Xiaomi, and possibly the biggest for an internet services company since Tencent Holdings’ IPO in 2004.
At a pricing range of HK$60 to HK$72 per share, Meituan plans to issue 480.27 million shares, seeking to raise US$3.7 billion to US$4.4 billion. If it exercises an over-allotment option, the IPO value could rise by 15 per cent to between US$4.2 billion and US$5 billion.
That would make Meituan’s listing the third largest in Hong Kong this year, after telecoms tower firm China Tower and Xiaomi.
The IPO also adds to a flurry of Chinese internet listings in Hong Kong this year. By the end of July, at least 10 Chinese internet firms had raised a combined HK$42 billion (US$5.35 billion).
At the indicated pricing range, Meituan is seeking a valuation of between US$45.5 billion and US$54.7 billion. That would be 52 per cent to 82 per cent above its most recent fundraising round last October, when it was valued at US$30 billion.
Meituan will begin taking institutional orders for shares from Tuesday, and retail orders from Friday. The stock is expected to start trading on September 20 on Hong Kong’s main board.
The internet firm would also become the second listed company on the Hong Kong stock market to have a weighted voting rights share structure, which gives founders greater voting power over minority shareholders.
But some analysts were concerned about its valuation.
“Meituan Dianping has a good story, but the valuation is a bit high given that it has not made a profit yet,” said Martin Ngan, sales director at Hong Kong brokerage Chaoshang Securities, after attending Meituan’s investor presentation on Tuesday in Hong Kong.
Although start-ups usually have lofty expectations about future growth, Ngan said he was a little doubtful whether Meituan could sustain the same growth rate after having achieved a big market share in China.
The listing prospectus showed Meituan suffered loss making years in 2015, 2016 and 2017, losing 10.5 billion yuan (US$1.54 billion), 5.8 billion yuan, and 19 billion yuan respectively. After adjustment – excluding the impact of fair value changes of convertible redeemable preferred shares and other items, the net losses were 5.9 billion yuan, 5.4 billion yuan, and 2.9 billion yuan respectively for the three years.
Another worrying factor might be China’s rising wages, which could increase Meituan’s costs and affect its profit margin, Ngan added.
In the meantime, Zhu Chao, chief executive for Hong Kong-based overseas asset platform Asset Pro, said he was more optimistic about Meituan’s future growth despite short-term market volatility.
He said he agreed with Meituan CEO Wang Xing’s strategy to strengthen the company’s current market position and upgrade its technology, while looking for opportunities to expand into other countries or regions.
“Seeing these long-term funds on the list of cornerstone investors, I’m more assured about our decision [to invest],” Zhu said.
New York-based Oppenheimer is the largest cornerstone investor, committing US$500 million for around 178.4 million shares, assuming the midpoint of the pricing range.
Tencent, which owned a 20 per cent stake in Meituan before listing, has agreed to invest US$400 million.
London-based hedge fund Lansdowne Partners and New York-based asset manager Darsana have committed US$300 million and US$200 million respectively.
China Structural Reform Fund, a state enterprise restructuring fund backed by shareholders including China Chengtong Holdings, China Merchants Group and China Mobile, will invest US$100 million.
Currently, CEO Wang Xing controls 11.44 per cent of the firm, smaller than Tencent’s 20 per cent share and equal to that of Sequoia Capital. But he, along with two other co-founders, retains majority voting rights through special class A shares, with each class A share equivalent to 10 votes. Tencent and Sequoia Capital both own class B shares, with each having one vote.