Xiaomi Shares Fall 6 Percent in Hong Kong Trading Debut

Smartphone maker Xiaomi Corp. had a lackluster Hong Kong debut on Monday, with its shares losing as much as 6 percent at the start of its first trading day, due to concerns over its valuation.

Shares of Xiaomi opened at HK$16.60 ($2.12), which was below its initial public offering (IPO) price of HK$17 ($2.17).

The company sold 2.18 billion shares, making its IPO the biggest in the tech sector since online retail giant Alibaba Group Holding Ltd. raised $25 billion in the US in 2014.

The electronics firm stated that it raised about HK$23.97 billion ($3.05 billion), following the deduction of fees and expenses. Its shares closed at HK$16.80 on Monday.

Xiaomi President and Co-founder Lin Bin said he believed short-term stock price is largely dictated by market conditions, and what they will be doing is to focus on the long-term growth of their business.

Xiaomi’s listing comes as investors worry over the ongoing trade tensions between the US and China, which have stunned markets over the past several weeks.

Hong Kong’s Hang Seng index hit a nine-month low last week due to the trade spat, and closed with 1.32 percent gain to HK$28,688.50 on Monday.

The Shanghai Composite index, which has also sharply declined this year on escalating trade tensions, added 2.47 percent to CN¥2,815.11 on Monday.

Lin has stated that the US-China trade conflict was not a big concern in the short term, since Xiaomi has not conducted much business in the US.

Analysts, on the other hand, believed the market may have determined that the Beijing-based group has been too expensive.

Xiaomi’s Valuation

Xiaomi’s IPO valued the company at around $54 billion, which is nearly half the $100 billion it had initially anticipated and lower than its recent target of at least $70 billion.

The smartphone maker had been estimated to raise $10 billion, with half of it raised in Hong Kong and other half in mainland China, but Xiaomi last month unexpectedly decided to postpone its mainland offering.

The HK$17 price valued Xiaomi at 39.6 times 2018 earnings, while iPhone maker Apple Inc. and Chinese multinational conglomerate Tencent Holdings Ltd. are trading at 16 and 36 respectively.

Chief strategist Linus Yip said trading below the issue price suggested that investors still felt the valuation of the stock was relatively higher than Tencent’s and Apple’s.

Xiaomi also has the problem of not being recognized by potential investors as an internet group it regarded itself to be, rather than a smartphone maker, which is currently creating the majority of its profits.

Xiaomi Founder and Chief Executive Lei Jun stated that they are an internet company, and that from day one, they have establish a dual-class share structure, adding that they would not have been able to go public in Hong Kong without the innovation of its capital market.  

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