Midea Group, with a discount of over 20%, this year's IPO giant is coming
Is Midea Group coming to list on the Hong Kong stock market?
Yes, this is the same Midea Group with A-share code 000333. It is indeed planning to list in Hong Kong. Many investors still hold positions in its A-shares, which have a market cap of over 200 billion RMB. This Hong Kong listing provides an opportunity to switch from A-shares to H-shares. So this isn't just about IPO subscriptions - some investors who were already bullish on Midea in the secondary A-share market can now transfer part of their A-share positions to Hong Kong shares.
After the Hong Kong listing stabilizes, if A-shares rise 10%, H-shares could follow suit or even outperform since there's no price limit. The A-H shares are interconnected.
Midea Group (00300.HK)
Sponsors: China International Capital Corporation Hong Kong Securities Limited and Merrill Lynch (Asia Pacific) Limited
Listing date: September 17, 2024 (Tuesday)
Offer price: HK$52.00 - HK$54.80
Fundraising amount: HK$25.591 - HK$26.969 billion
Board lot: 100 shares
Minimum investment: HK$5,535.27
Subscription period: September 9-12, 2024
Total offer: 492.1351 million H shares
International placement: 467.5283 million H shares (~95%)
Public offering: 24.6068 million H shares (~5%)
Total market cap: HK$389.234 - HK$410.193 billion
H-share market cap: HK$25.591 - HK$26.969 billion
Issue ratio: 6.57%
P/E ratio: 10.81
Company profile:
Midea Group is a global leader in technology-driven smart home and commercial/industrial solutions. Its smart home business provides various household appliances, while its commercial/industrial solutions offer products like compressors, commercial AC, industrial robots and supply chain services. Ranked in Fortune Global 500 for nine consecutive years, Midea operates in 200+ countries with 33 R&D centers, 43 production bases and over 190,000 employees globally. Most revenue comes from appliance sales in its smart home business.
The company operates through two segments:
Smart Home: Offers appliances including AC, refrigerators, washing machines and kitchen appliances, utilizing IoT and AI for connected smart home experiences.
Commercial & Industrial Solutions: Provides products/services like new energy tech, smart building solutions, robotics and automation. This segment's revenue grew at 15.4% CAGR from 2021-2023, increasing its contribution from 21.4% to 26.2%.
Financial highlights (2021-2023):
Revenue: RMB343.361bn, RMB345.709bn, RMB373.710bn (4.33% CAGR)
Gross profit: RMB76.910bn, RMB83.387bn, RMB98.390bn (13.11% CAGR)
Net profit: RMB29.031bn, RMB29.812bn, RMB33.747bn (7.82% CAGR)
Gross margin: 22.40%, 24.12%, 26.33%
Net margin: 8.46%, 8.62%, 9.03%
Source: LiveReport Big Data
Cornerstone investors:
10 cornerstone investors subscribed to 37.25% of the offering. Given the massive HK$25.591-26.969 billion fundraising, even billions in cornerstone investments would only account for single-digit percentages. For smaller offerings, such investments could cover 30-50%.
With 10 underwriters, this deal is undoubtedly led by CICC.
Sponsors' track records:
China International Capital Corporation Hong Kong Securities Limited
Merrill Lynch (Asia Pacific) Limited
2. Allotment ratio and analysis
(From AIPO)
Current margin financing hasn't reached the required HK$1.4 billion.
Midea's clawback mechanism:
If public subscription is 9-18x, public offering increases from 5% to 6%; 18-36x to 7%; over 36x to 8%.
If institutional placement is undersubscribed but public offering is fully subscribed, or both are fully subscribed with public subscription below 9x, public offering may increase up to 10%, but only if priced at the lower end.
Allotment ratio analysis:
If margin financing stays below 15x, with 50,000 applicants, the allotment ratio could be 100%. With 100,000 applicants, it would be 74%. Given current market conditions, full allotment seems likely.
Group A financing tiers:
Group B requires HK$5.54 million principal. Group B financing tiers:
Group B financing tiers with interest rates:
At the mid-point price of HK$53.40, total listing expenses are about HK$340 million (1.29% of fundraising), relatively low compared to the HK$26.28 billion raised.
Should you subscribe? Here's my analysis:
As of September 5, 2024, Midea's A-share (000333) closed at RMB63.02 (HK$69.12). The upper offer price of HK$54.80 represents a ~20% discount. The A-share premium over H-shares is about 20%.
Midea's HK$25.591-26.969 billion fundraising would be the largest in recent Hong Kong market history - a true mega IPO that could drain market liquidity. The first half of 2024 saw all IPOs combined raising less than this single offering. With tight market conditions, the lower end price of HK$52.00 (RMB47) versus the current RMB61 represents a 23% discount - quite attractive.
This IPO isn't just for IPO investors. Existing A-share holders might consider participating since they're already invested. They could transfer part of their A-share positions to H-shares.
Post-listing, if A-shares rise 10%, H-shares could follow or exceed due to no price limits. The A-H share linkage makes this particularly suitable for existing Midea A-share holders who could sell A-shares and buy H-shares instead. Some IPO participation seems advisable.
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