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Thursday, December 15, 2016, 12:06

Meitu marks biggest tech IPO in HK since 2007

By Bloomberg
Meitu marks biggest tech IPO in HK since 2007
Meitu CFO Gary Ngan (left), founder and Chairman Cai Wensheng (middle), and founder and CEO Wu Xinhong pose for a photo during Meitu IPO news conference in Hong Kong. (Edmond Tang / China Daily)

Chinese selfie-apps developer Meitu Inc . stood little changed from its offer price Thursday, a less-than-stellar debut for the biggest initial public offering since the start of a program that made it easier for mainland investors to buy and sell stocks in Hong Kong.

Meitu’s IPO was also the biggest coming-out party for a tech company since 2007, when Ltd. listed. Its shares stood at HK$8.50 at 9:49 am local time, unchanged from an offer price that was already at the bottom of a marketed range. Meitu now has a valuation of HK$35.9 billion ($4.6 billion).

The Xiamen-based company wants to rake in the benefits of a Hong Kong-Shenzhen link that began this month, as more mainland Chinese seek alternative investments to diversify their assets, Chairman Cai Wensheng said in an interview. Meitu is trying to capture more overseas users in the US and Southeast Asia, as it generates more money from advertising and e-commerce.

"Meitu’s majority of users are still in the mainland; they acknowledge our value and we are providing a chance for them to become Meitu’s shareholder," said Cai in an interview on Tuesday. "It’s hard for Chinese to go to the U.S. and open stock brokerage accounts, but because of the Shenzhen-Hong Kong link, everyone can buy our stock."

Hong Kong’s link to Shenzhen, a technology hub and home to China’s second-largest equity market, kicked off this month. While it enables mainland investors to buy Hong Kong stocks directly, there are quotas and restrictions on the shares that can be bought, including that they are a member of key indexes.

Meitu is trying to capture more overseas users in the US and Southeast Asia, as it generates more money from advertising and e-commerce

“Meitu has a chance of getting a better valuation in Hong Kong than if it listed in the US,” said Marie Sun, an analyst at Morningstar Investment Service. “It can attract more funding in Hong Kong because people are familiar with its product.”

The listing of the selfie application and phone maker, which raised $629 million, marks the biggest initial public offering by a technology company in Hong Kong since 2007.

While mobile devices account for about 95 percent of revenue at the company, Cai envisions it to drop to less than 30 percent within three years as services and software take off.

The company, which runs apps including Meitu, Meipai and BeautyPlus, is ratcheting up a presence in overseas markets to lure more people beyond the existing 456 million monthly active users. Beauty Plus currently has more than 160 million users including in Japan, Indonesia and India. It will develop more localized features for people in the US, including tools that make people look tanned in their photos, said Cai.

Meitu expects its internet services and others segment, which includes ads and virtual gifts, could break even by the end of next year, according to its prospectus. For its e-commerce business it will work with brands including Dior and Ports to focus on the mid-to-high-end market, said Cai.

The controlling shareholder of Hong Kong-listed fashion company Portico International Holdings Ltd. agreed to buy $120 million of stock in Meitu’s IPO as a cornerstone investor.

Chinese property developer Kingkey Group committed to invest $40 million. Such stock buyers typically agree to keep their holdings for six months in return for early, guaranteed allocation.

Morgan Stanley, Credit Suisse Group AG and China Merchants Securities Co. are joint sponsors of the offering.

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