Tencent-backed Yixin’s IPO is Hong Kong’s 10th hottest ever as investors eye China’s online car sales growth

Yixin Group, China’s largest online car retailer, has priced its highly-anticipated initial public offering at the upper end of the price range to raise a total HK$6.77 billion (US$870 million), as investors eye the rapid rise of vehicle e-commerce in the mainland.

The offering, the third largest by an internet business in Hong Kong this year, has been oversubscribed 560 times by retail bidders, with locked-in investor capital of HK$382 billion, making it the 10th hottest IPO in the city’s history.

Yixin priced the 879 million shares on offer at the top end of an indicative price range of HK$6.6 to HK$7.7.

More than 300,000 retail investors bid for the new shares, Yixin said on Wednesday. Of those, about 32,000 subscribed for just one lot each, of whom 3,200 were successful. The 10 per cent success rate is still higher than China Literature, whose recent IPO only had a 7.7 per cent success rate among retail bidders.

The stock is scheduled to start trading Thursday on the market.

On Singles’ Day, the online shopping bonanza held on November 11, three Chinese vehicle e-commerce platforms, Autohome, Yixin’s Taoche.com, and Bitauto, said their car purchase orders had exceeded 800,000 in total, with a combined value of more than 100 billion yuan (US$15 billion). That accounted for about a third of China’s total new car sales in October, according to statistics from the China Association of Automobile Manufacturers.

Andy Zhang Xuan, Yixin’s CEO, said earlier this year that his platform has the advantage over traditional dealerships of a richer choice of cars and financing options, faster approvals and a wider user base unrestricted by geography.

Spun off from Bitauto in 2014, Yixin derives its revenues mainly from providing a marketplace for car transactions and acting as an intermediary for consumers to get car loans from a third party. It also has its own car finance and leasing business.

Yixin has said previously that its business model resembles Taobao, the popular online shopping website. In June, the company launched “Taoche”, a one-stop online platform for consumers to buy cars, trade used cars, and access transaction and customer services.

“Yixin will focus on developing its business in mainland China at the moment,” said Zhang in Hong Kong, noting that China’s car-financing market still has a relatively low penetration rate compared to developed economies.

Zhang said the transaction platform business is growing at a faster pace, although the financing business currently contributes more to total revenues.

According to a report by market research firm Frost & Sullivan, Yixin was mainland China’s largest online car retail platform in 2016, measured by the volume and value of transactions. It currently has a market share of 19 per cent.

In 2016, Yixin recorded more than 260,000 car and car-related transactions online, with an estimated aggregate value of over 26 billion yuan (US$4 billion).

In the first half of 2017, the volume of total sales grew 88 per cent year on year to 160,000, while the aggregate value increased 94 per cent to 16 billion yuan.

Yixin will use 30 per cent of the IPO proceeds to expand geographically through partnerships with car dealers, 20 per cent to enhance research and technology capabilities, another 20 per cent to support growth of the financing business and 20 per cent for potential future acquisitions. The remainder will be used as working capital and for other general corporate purposes.

The firm’s largest shareholder, online car marketplace Bitauto, has a 51.6 per cent stake.

Tencent currently holds 24.3 per cent, while e-commerce platform JD.com and internet search firm Baidu own 12.7 per cent and 3.5 per cent respectively.

Yixin reported revenues of 1.55 billion yuan in the first half of 2017, up 240 per cent from a year ago. Adjusted net profit reached 261 million yuan, a nearly eightfold increase from the same period last year.

Earlier this year, ZhongAn Online Property & Casualty Insurance, China’s first online-only insurer, and China Literature, the country’s largest online publishing and e-book website, both of which have Tencent as a major shareholder, raised HK$11.9 billion and HK$8.3 billion from their respective listings in Hong Kong.

Tencent stock has more than doubled this year, with its market capitalisation inching close to US$500 billion. It traded at HK$386.2 on Wednesday morning.

Separately, Jim Rogers, the famous investor, said he thought American and Chinese technology shares are both in a developing bubble, but the former more likely to burst earlier.

“When everyone is saying the shares of a technology company are going to keep rising and never stop, you know it’s time to sell,” he said on Wednesday on the sidelines of a forum in Hong Kong.

Additional reporting by Jane Li