Tencent Holdings Ltd.’s online literature unit, which seeks up to HK$8.3 billion ($1.06 billion) in an initial public offering (IPO) in Hong Kong, has had an enthusiastic reception from retail investors.
Based on an incomplete survey of eight brokerages in Hong Kong, the retail offering portion of China Literature Ltd.’s Hong Kong IPO is likely oversubscribed about 420 times.
As the book closed midday Tuesday, those brokerages said orders from retail investors reached HK$350 billion, some of which was from borrowed funds, or so-called margin lending.
Retail investors are allocated only 15 million IPO shares, and China Literature shares are priced from HK$48 to HK$55. China Literature’s IPO aims to raise up to HK$8.3 billion by selling 150 million shares, 90% of which will be sold to institutional investors. Only 10% will be allocated to retail investors.
China Literature’s six-month revenue was up by 92.5%, from 999.6 million yuan ($150.3 million) in January through June 2016, to 1.9 billion yuan in the same period this year, according to its Post Hearing Information Pack. The company reported a net profit of 213.5 million yuan for the first six months of 2017, compared with a net loss of 2.4 million yuan in the same period last year.
The company reported a net loss of 21.1 million yuan in 2014, and the net loss expanded to 354.2 million yuan in 2015, according to the listing prospectus filed with the Hong Kong Stock Exchange. But the company managed to post a net profit of 30.4 million yuan in 2016.
Despite a bumpy earnings record, China Literature’s shares could still double or triple on their debut before paring gains, said a director of Prudential Brokerage Ltd., a Hong Kong-based brokerage. During the past three years, China Literature had reported losses in some quarters, this director added.
China Literature expects the country’s online literature market to grow from 11.4% of the total literature market in 2016 to 22.7% in 2020, expanding faster than the other two segments of the market — e-books and paper books, the company said. The online literature market was worth 4.6 billion yuan in 2016.
— This article originally appeared on Caixin.