Bring on the unicorns

Good Doctor makes stock market debut as Xiaomi files for Hong Kong IPO


Good Doctor’s management team

For a long time companies needed three consecutive years of profit before they could apply for a listing on Hong Kong’s main bourse. This rule was amended in 2004 to make way for “large corporations” with market values higher than HK$4 billion ($510 million).

At the time Hong Kong stocks were recovering from a three-year bear market, but there were still concerns that the Hong Kong Stock Exchange and Clearing (HKEx) was loosening the rules too much in a bid to attract big state-owned enterprises from China.

For instance, the proposal looked tailor-made for SMIC, a foundry set up in 2000 to take on Taiwan’s mighty TSMC (see this week’s “Talking Point”). With barely two sets of annual financial reports, the heavyweight start-up was given the green light to IPO in March 2004.

But the latest company to benefit from the rule is Ping An Healthcare and Technology, which operates Good Doctor, the online health platform of Shenzhen-based Ping An Insurance. Good Doctor was only launched in 2015 and the company has been lossmaking ever since, reporting a net loss of Rmb1 billion ($158 million) in 2017.

Investors are more impressed by its revenues, however, which surged from Rmb279 million in 2015 to more than Rmb1.8 billion last year.

Good Doctor is one of a long line of unicorns (private firms valued at more than $1 billion) wanting a stockmarket debut. With more than 100 million registered users, it is already China’s biggest online health platform and one of the pioneers of the government’s so-called “big health” concept (see WiC397). Its flotation in Hong Kong is also the biggest this year, raising nearly HK$9 billion. In a sign that the territory’s primary market is heating up, the retail tranche of the IPO was oversubscribed 650 times, making it the most sought-after offering on the main board since 2009.

Trading in the shares started today. By the midday close, Good Doctor shares were up only 1%, giving it a HK$60 billion valuation, versus HK$23.4 billion in 2016, when it concluded its final private fundraising round.

Good Doctor rival WeDoctor, which is backed by internet giant Tencent, is now said to be planning an IPO of its own, and a number of biotech and fintech start-ups are set to follow. Real estate service provider E-House has also filed for a $600 million IPO.

HKEx is amending its listing rules again to pave the way for many of these flotations. Biotech firms with no record of revenues will now be considered and the door is also opening for companies with dual-class shareholding structures (older restrictions in this area saw Alibaba choose New York over Hong Kong in 2014).

A number of the Chinese tech giants have dual-class shareholding structures in place, giving the founders control over their creations without holding majority stakes.

Xiaomi, one of the oldest unicorns in the Chinese tech sector, is one of the first to act on the rule changes. The smartphone and consumer goods maker filed its own listing application on Wednesday and newspapers have reported that it is looking to raise $10 billion in a mega IPO that would value the eight year-old firm at $100 billion.

That would see Xiaomi surpass Baidu in value, although it still lags Tencent and Alibaba by several hundred billion dollars.

Xiaomi says it will use 30% of its IPO proceeds to develop the ecosystem of its technology business, especially in artificial intelligence and the Internet of Things, where devices are linked via the internet.

Financial regulators in mainland China have also been lifting some of their restrictions in a bid to lure tech IPOs (see WiC400). Thus Hong Kong Economic Journal has described Xiaomi’s listing in Hong Kong as a “vital victory” for the HKEx, which was overtaken by Shanghai last year in the global IPO fundraising league.

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