According to the news report by CNN Money, Chinese electronics maker Xiaomi Corp’s share prices surged more than 13% on the second day of trading after the company went public. Xiaomi closed the day’s trading at HK$19 (US$2.42), up from its Initial Public Offering (IPO) price of HK$17 (US$2.17). In fact, share prices gained as much as 15% during the day’s trading before closing the day at HK$19 per share.
Xiaomi went public on Monday, Jun 9, in Hong Kong, with an IPO that raised US$4.7 billion, making it the biggest tech IPO in the world since Alibaba was listed on the New York Stock Exchange in 2014.
Xiaomi’s trading debut was a disappointing one, with share prices falling by 6% before recovering somewhat during the day. The $4.7 billion that electronics company was able to raise through its IPO was only just over half of the $10 billion it had targeted, bringing its market value to $54 billion. This is the first ever Chinese firm to be listed on the Hong Kong Stock Exchange.
The Chief Executive Officer of Xiaomi Lei Jun referred to the current market turmoil caused by the increasingly acrimonious trade war between China and the US as being less than ideal for a new IPO.
According to the head of research at Hong Kong based brokerage Kingston Securities, Dickie Wong, the reason why Xiaomi’s share price surged on its second day of trading is because of the announcement that the company would soon be added to the Hang Seng Composite Index.
The inclusion of the company in the Index, slated to take place next month, would mean that Xiaomi’s shares would then be available for trading in mainland China too via the Hong Kong exchange’s connections with the Shanghai and Shenzhen markets.
Wong feels that the bet is on traders in mainland China who will wish to invest in this company’s shares. Xiaomi had earlier planned to make its IPO debut by listing itself on exchanges in the Chinese mainland at the same time that it debuted in Hong Kong. This idea, however, was put on hold and the company listed its shares on only the Hong Kong Stock Exchange.
And while the second day of trading for the electronics maker went better than the first, some analysts are still doubtful about Xiaomi being able to increase profit margins in the future since most of its smart phones are targeted at the lower end of the market.
The company has tried to address that concern by positioning itself as an internet services business rather than just a hardware manufacturer, however, investors are still not biting.
The company has a wide range of businesses such as making various devices that are connected to the internet, such as laptops and even smart rice cookers, however, at the end of the day, the main source of revenue for the company is still its smart phones division. And while most of its sales are still in China, the company is expanding aggressively in other countries, with one of its biggest markets being India.
The good news is that there are enough analysts in the market who also support Xiaomi and are bullish on the company’s ability to grow. Investment bank Macquarie’s analysts stated that Xiaomi phones are innovative and are quick to reach the market. Additionally, and most importantly, they are extremely competitively priced, which is a huge advantage.
Macquarie feels that the Xiaomi’s strategy of generating revenues via add on services such as online games as well as other apps puts the company on the path to strong growth in its profit margins. In fact, the bank feels that Xiaomi’s share prices could actually go as high as HK$30 (US$3.82).