Midea Group Co., China’s leading appliance manufacturer, saw its shares rise sharply during their first trading day in Hong Kong. Following the city’s largest listing in three years, the company’s stock surged up to 9.5% from its initial issue price, reaching HK$60 in early trading. The shares were initially priced at HK$54.80, the upper limit of the proposed range, signaling strong investor interest. This $4 billion listing marks Hong Kong’s biggest market debut since Kuaishou Technology’s $6.2 billion offering in early 2021.
This listing comes at a crucial moment for Hong Kong’s market, which has struggled with declining IPO volumes amid China’s broader economic headwinds. Midea’s robust demand reflects the continued appetite for companies with solid business models, offering a glimmer of optimism for investors and market stakeholders.
“If Midea maintains its gains throughout the week, it could set a more favorable environment for upcoming IPOs,” stated Benjamin Wong, Chief Investment Officer at Rockpool Capital Ltd., a wealth management firm based in Hong Kong.
Due to high demand, Midea sold 566 million shares, boosting the offering size by 15% through an over-allotment option. The international tranche, accounting for 95% of the offering, was oversubscribed by more than eight times, even before the adjustment. Citigroup analysts Xiaopo Wei and Vincent Young noted in their report that the top-end pricing of Midea’s shares signals strong investor demand for liquid assets in China’s home appliance sector.
Midea’s successful debut may trigger further momentum in Hong Kong’s market, aligning with Beijing’s efforts to encourage leading Chinese firms to list in the city. Analysts suggest that upcoming IPOs, such as China Resources Beverage Holdings Co., may gain additional support following this launch.
Midea, already a staple on the Shenzhen stock exchange, offers a wide range of products, including air conditioners, washing machines, and elevators. The company plans to use the proceeds from the Hong Kong listing to expand its global distribution and sales network, aiming to enhance its international market presence.
The timing of Midea’s listing appears favorable, given current market dynamics. Citigroup’s analysts describe home appliances as the most preferred sector among China’s consumer discretionary industries in the latter half of the year, citing “higher earnings visibility.” Moreover, government-backed initiatives, like the “trade-in” policy that encourages consumers to upgrade existing appliances, could further bolster the sector’s growth. Citi analysts anticipate that this policy will be rolled out nationwide by October, potentially accelerating Midea’s sales.
With the successful debut, Hong Kong’s IPO proceeds for the year have reached $6.5 billion, surpassing the total volume for all of 2023. While still lower than previous peak years, this is a positive sign for the market. Before Midea’s listing, IPOs in Hong Kong had generated an average 2.1% gain on their first day of trading this year.
Cornerstone investors, who typically commit to holding shares for at least six months, have already agreed to purchase $1.26 billion worth of Midea’s stock. These include a subsidiary of Cosco Shipping Holdings Co. and a unit of UBS Asset Management AG.
Interestingly, Midea’s Hong Kong offering was priced at a roughly 20% discount compared to its Shenzhen-listed shares, making it an attractive entry point for investors. The deal could expand to $4.6 billion if an overallotment option is exercised, potentially providing further upside for both the company and its investors.
