After enduring a long and harsh winter, the Hong Kong stock market is finally embracing what is being dubbed as a “Spring Revival.” As the first quarter of 2024 came to a close, all three major indices in the Hong Kong stock market have rebounded by over 10% from their January lowsA multitude of factors including improving liquidity and a recovering economy are projected to propel the Hong Kong stock market into a bullish phase.

The low valuations of Hong Kong shares have piqued the interest of many investors, particularly from the mainlandData from Wind reveals that from February 20 to April 3, southern capital, which refers to the funds flowing from mainland China to Hong Kong through the Stock Connect scheme, saw a net inflow for 29 of the 30 trading daysThis surge in interest has led to a broader recovery trend within the market, demonstrating a robust appetite for undervalued assets.

Adding to the optimism is the revival of the Initial Public Offering (IPO) market, which had remained in the shadows for some timeThe year 2024 has seen an influx of companies like Mexicool, Gu Ming, and others filing their IPO applications, thus vying for the title of "dominant player in the beverage sector." Furthermore, Horizon Robotics, a valuation behemoth worth about 63 billion yuan, has made headlines with its own intentions to conduct a massive IPO in Hong Kong.

In a significant move, on April 2, Lalamove, the largest city logistics platform in the world, submitted its revised prospectus to the Hong Kong Stock Exchange, injecting fresh energy into the IPO marketThe prospect of bigger IPOs amidst improving market sentiment is reshaping the investment landscape.

A report from Industrial Securities highlights this burgeoning “leading stocks” trend in the Hong Kong marketThe success rate of certain investments has begun aggregating around industry leaders, paving the way for the concept of “high-yield assets” to lead the recovery in Hong Kong stocks.

The close correlation between the secondary market and the IPO scene is undeniable

Advertisements

Notably, companies that are making moves to enter the IPO stage are likely to see enhanced valuations, especially emerging leaders like Lalamove that are positioned for success.

However, this shift hasn’t been without its hurdlesThe Hong Kong market faced several exogenous pressures leading to prolonged adjustments over the past yearsSustained interest rate hikes by the U.SFederal Reserve to combat inflation have tightened global liquidity, consequently affecting Hong Kong's capital flow as an international marketplaceThis has translated into a subdued IPO landscape, with only 73 companies listed on the exchange in 2023—a decrease of 19% from the previous year, according to data from the Hong Kong Exchange.

Against this backdrop, many companies have adopted a strategy of submitting multiple applications or “preparing to go public” multiple timesThis can be attributed to two primary reasons: the elongation of the IPO cycle, which often renders financial data outdated and thus nullifies previous applications; and companies choosing to wait for a more opportune market situation to maximize their valuations.

It is crucial to note that reapplying for an IPO doesn’t indicate a failure of the initial attempt; rather, it reflects the company’s strategic adjustments to align with market trajectoriesAdditionally, the number of applications does not necessarily correlate with a company's competitiveness, which is grounded in its fundamentals.

Research has shown that nearly 90% of the IPOs in 2023 involved companies that had to reapply multiple timesAs of 2024, the trend continues with several firms, including trending options like Cha Baidao and Lalamove, reapplying for IPO consideration multiple timesIn fact, on March 28, 2023, Lalamove officially made its proposal, with hopes of debuting on the main board of the Hong Kong stock market.

Since the beginning of 2024, the growth of the three major indices has been substantial, effectively signaling a favorable valuation correction period for individual stocks, including those like Lalamove, which appear poised to successfully transition to the public sphere

Advertisements

Analysts anticipate a vibrant summer for the IPO market in 2024, potentially turning it into one of the busiest fundraising periods in recent history.

Deloitte and PwC forecast that around 80 firms will go public in Hong Kong by the end of the year, likely generating over 100 billion HKDThis resurgence could see Hong Kong re-establishing its position amongst the top three global markets in terms of fundraisingSimilarly, KPMG anticipates around 90 IPOs, projecting the fundraising figure to surge past the 100 billion HKD mark.

Statistics from the Hong Kong Stock Exchange indicate that the first quarter of 2024 saw 65 firms file applications for IPOs, reflecting a notable growth of 22.64% compared to the previous year’s first quarter when only 53 applications were recordedAmong these, twelve firms successfully navigated their way to public markets, raising an average of 311 million HKD each, demonstrating growth in funds raised compared to the same time last year.

What emerges strongly from this analysis is the rekindled excitement within the IPO market in Hong KongPositioned as a global nexus for capital flows, Hong Kong remains an appealing target for conglomerates like Lalamove, attracting interests from international investors eager to tap into the vast potential of the Asian economy.

The Hong Kong stock market has established itself as Asia’s most dynamic capital marketplace over the yearsIt boasts a thorough regulatory framework, a high degree of market openness, and a diversely rich toolbox for financingEven after a few years of a muted market, it remains highly regarded globally; various reports affirm Hong Kong’s earlier success as a frequent top fundraiser from 2009 to 2021.

The comforting reality is that even amidst sluggish market conditions in recent years, Hong Kong has not lost its allure among global capital investorsObservations from firms like Deloitte suggest that the IPO market's potential for 2024 stands strong, with estimates suggesting a rebound into the top tier of global fundraising venues.

For years, the Hong Kong market has been a magnet for industry giants across sectors, including tech titans like Tencent, Alibaba, and JD, green energy front-runners like NIO and Li Auto, and leading names in food and beverage like Haidilao and Nongfu Spring.

Now, as Lalamove readies for its IPO bid once more, it adds to the list of potential market leaders

Advertisements

The firm, known for its tech-driven logistics solutions, is recognized as a continually rising force in global logistics, with its business spanning across diverse geographies.

Data from Frost & Sullivan reveals that in the first half of 2023, Lalamove emerged as the largest logistics transaction platform based on the total transaction value globally, capturing a significant 44.0% market share and an impressive 61.0% share within mainland China.

Amid its global expansion plans, Lalamove has made strides into Southeast Asian markets since 2014, with continued diversification into cross-city segments in mainland China around 2018, and further extending its reach into Latin American markets in 2019. As of 2023, Lalamove services over 400 cities worldwide, accumulating a trading total value of USD 8.736 billion.

IPO proceedings for such firms become mutually beneficial with their respective business growth trajectoriesListing on the Hong Kong exchange not only enhances these companies' international visibility but also fosters trust with potential business partners, thereby paving the way for expansion in the global market.

Additionally, the economic momentum of China as a key catalyst for global growth is universally recognizedThe Hong Kong market, with its maturity and internationalization, serves as a major channel for global investment into the thriving Chinese economyFirms going public here are likely to achieve more favorable valuations as a result.

The ongoing “leading stock” bullish trends in the Hong Kong market present significant opportunities for companies on the brink of their IPOsResearch indicates a burgeoning interest in the ability of high-quality companies to recover from previous downturns swiftlyThis is clearly a time of transformation as expectations begin to realign with a rapidly improving economic landscape.

Investors are now keenly watching firms like Lalamove, acknowledged for their solid fundamentals, which report a compound annual revenue growth rate of 25.7%, with revenue rising from USD 845 million in 2021 to USD 1.334 billion in 2023. The company turned a profit with adjusted earnings of USD 391 million in 2023, highlighting a significant turnaround in its operational health.

In conclusion, as capital increasingly gravitates towards market leaders, Lalamove exemplifies the opportunity within the realm of promising IPOs

Advertisements

Advertisements