Car Specialist Eyes New Home on Hong Kong Stock Exchange

New York-listed Autohome aims to broaden its investor base with second IPO that could raise $1 billion

Key takeaways:

• Autohome’s Hong Kong listing could help to end a recent cycle of ups and downs for its New York-listed shares by broadening its investor base.
• The company currently commands a relatively high valuation due to its status as one of the few money-making platforms for car enthusiasts.

By Doug Young

The migration of New York-listed Chinese companies to Hong Kong has taken a new turn with the announcement that lesser-known name Autohome Inc. (NYSE: ATHM) is planning such a move.

Make no mistake, Autohome remains a major force on China’s internet. The company is China’s leading provider of information and services for car enthusiasts, and its backers include financial services giant Ping An.

But relatively speaking, Autohome is far lower-profile than nearly all the companies that have already made secondary listings in Hong Kong to complement their New York listings. It has a relatively modest market value of about $13.5 billion, compared with $650 billion for Alibaba (NYSE: BABA; HKEx: 9988), which pioneered the dual-listing strategy with its $11.2 billion Hong Kong IPO in 2019.

Most companies that have executed similar dual listings since then have also been quite large, including JD.com (Nasdaq: JD; HKEx: 9618) at a market cap of $150 billion, and NetEase (Nasdaq: NTES; HKEx; 9999) at $75 billion. So this latest listing by a relative unknown could mean the trend is moving down the food chain, and we could perhaps eventually see companies with market values as low as $5 billion or lower weighing a move to Hong Kong.

We’ll explore the reasons for such a move shortly, including pluses and minuses that might encourage or deter them. But first, let’s review the latest details on Autohome, which is not only one of China’s oldest online watering holes for car enthusiasts but also one of the few that is publicly traded and also profitable.

The company announced its intent on Wednesday to the New York Stock Exchange, on which it currently trades, and on Thursday filed an IPO prospectus in Hong Kong. The plan would see it issue about 30.3 million shares at a maximum price of HK$258.10 ($33.27), meaning it could raise around $1 billion. 

Investors didn’t seem too excited about the plan, with Autohome shares falling 4% in New York after the initial announcement.

Solid, But Not Stunning, Growth

There isn’t anything really new in the prospectus, since the company already releases financial data under its New York listing. In a nutshell, Autohome is relatively large and was posting decent double-digit gains both in revenue and profit before the pandemic.

After rising 16.4% to 8.4 billion yuan ($1.3 billion) in 2019, Autohome’s revenue growth slowed considerably to just 2.8% last year, according to the prospectus. Its net income looked similar, slowing from 11.8% growth in 2019 to about 6.5% last year, when the figure reached 3.4 billion yuan. The company said earlier this month it expects to return to more normal revenue growth of about 18% in the this year’s first quarter, though we should note that last year’s first quarter was weak due to the start of the Covid-19 outbreak in China at that time.

In terms of valuation, Autohome trades at a relatively frothy price-to-earnings (PE) ratio of 34. But perhaps that valuation is justified since nearly all other players in the space are currently losing money, including Uxin, the company’s lone listed domestic peer, and global companies like Vroom and Carvana.

Autohome’s stock history has been a bit of a roller coaster over the last three years, with its current price looking like a possible peak, just ahead of a downturn. That may partly explain this latest Hong Kong IPO plan, which could be aimed at broadening its investor base and putting it on a more solid upward track.

Unlike more traditional IPOs that really are a company’s first offering, these secondary listings have proven to be non-events at their trading debuts. That’s because, at least so far, the Hong Kong shares have pretty much tracked their New York counterparts. So if the New York shares rise a lot one day, then the Hong Kong shares will simply follow that lead the next day. Such movement isn’t all that unexpected, since New York is the clear global leader in setting the tone each trading day.

The main advantage of these Hong Kong listings seems to be greater access to mainland Chinese investors, who tend to be more interested in such stocks. A second Hong Kong listing also allows for near round-the-clock trading due to the big time difference between New York and Hong Kong.

Hong Kong has set a minimum market cap of HK$5 billion, or about $650 million, for any New York-listed company doing a secondary IPO in the former British colony. Autohome is still well above that level, and its listing signals considerably smaller companies might make the move as well. Despite the upsides we’ve already mentioned, such IPOs do have some downside, since they require quite a bit of extra expense and effort to comply with requirements by two regulators.

At the end of the day, the listing does seem to indicate that smaller U.S.-listed Chinese firms will make the move to Hong Kong as this particular route becomes more familiar. But especially when it comes to smaller companies, the migration is likely to be concentrated on higher-growth firms that can excite investors enough to make the extra effort worth it.

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