Youku soars 161pc to $33.44, af­ter com­plet­ing $203m IPO

The Pak Banker - - Company& -

NEW YORK: Youku.com Inc. has the largest gain for a U.S. ini­tial pub­lic of­fer­ing in five years and E-Com­merce China Dang­dang Inc. al­most dou­bled in its de­but af­ter in­vestors flocked to buy into China's In­ter­net boom.

Youku.com, China's largest on­line video com­pany, soared 161 per­cent to $33.44 yes­ter­day, af­ter com­plet­ing a $203 mil­lion IPO. The first-day ad­vance was the biggest since Bei­jing-based Baidu Inc., owner of China's most-used In­ter­net search en­gine, more than quadru­pled af­ter its of­fer­ing in Au­gust 2005. China Dang­dang, the coun­try's biggest book re­tailer, gained 87 per­cent af­ter its $272 mil­lion ini­tial sale.

The of­fer­ings were the first of five main­land Chi­nese IPOs sched­uled in the U.S. this week. The four pre­vi­ous In­ter­net com­pa­nies from China that com­pleted sales this year surged an av­er­age of 57 per­cent in their trad­ing de­buts, Bloomberg data show. China, home to more than 400 mil­lion In­ter­net users, may ex­pand four times as fast as the U.S. next year, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund.

Youku.com and China Dang­dang are "two com­pa­nies that ex­cite in­vestors' imag­i­na­tion," said Jack Ablin, chief in­vest­ment of­fi­cer at Chicagob­ased Har­ris Pri­vate Bank, which over­sees $55 bil­lion. The IPOs rep­re­sent an "in­ter­sec­tion of China and the In­ter­net, and so ev­ery­one's jump­ing on board for that theme," he said.

Gold­man Sachs Group Inc. of New York man­aged Youku.com's sale, while Credit Suisse Group AG in Zurich and New York-based Mor­gan Stan­ley of New York led the of­fer­ing for China Dang­dang. Both com­pa­nies are based in Bei­jing.

Prior Youku.com's de­but, Chi­naCache In­ter­na­tional Hold­ings Ltd., a Bei­jing-based provider of con­tent for busi­ness web­sites, had the biggest first-day rally on U.S. ex­changes in three years, jump­ing 95 per­cent on Oct. 1.

Youku.com, whose name means "ex­cel­lent and cool," sold 15.85 mil­lion ADRs for $12.80 apiece af­ter of­fer­ing 15.4 mil­lion for $9 to $11 each, an SEC fil­ing and Bloomberg data showed.

The mid­point val­ued Youku.com at 15 times pro­jected an­nual sales, com­pared with the me­dian of 3 times es­ti­mated 2011 rev­enue for 12 U.S.-traded In­ter­net-con­tent providers, data com­piled by IPOdesk­top.com and Bloomberg show. It hasn't posted

to a profit in the last three years.

China's on­line-video mar­ket more than dou­bled to 621 mil­lion yuan ($93 mil­lion) last quar­ter, ac­cord­ing to Bei­jing­based re­search com­pany Analysys In­ter­na­tional. Google Inc.'s YouTube, the world's most pop­u­lar video-shar­ing site, is in­ac­ces­si­ble in China.

"The mar­ket op­por­tu­nity, es­pe­cially on the con­sumer side, is be­com­ing in­creas­ingly clear and con­tin­ues to be ro­bust," Vic­tor Koo, founder and chief ex­ec­u­tive of­fi­cer of Youku.com, said in a tele­phone in­ter­view from the NYSE. "That's some­thing that's in­ter­est­ing and ex­cit­ing for a lot of U.S. in­vestors."

China Dang­dang sold 17 mil­lion Amer­i­can de­posi­tary re­ceipts at $16 each this week af­ter orig­i­nally of­fer­ing them for $11 to $13 apiece, ac­cord­ing to a fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion and data com­piled by Bloomberg.

The com­pany had in­creased the price range for its of­fer­ing to $13 to $15 apiece this week from $11 to $13.

The orig­i­nal mid­point val­ued the com­pany at 48 times an­nual earn­ings, based on third-quar­ter re­sults, data com­piled by Ma­rina del Rey, Cal­i­for­nia-based IPOdesk­top.com show. That's 64 per­cent higher than the me­dian of 29.2 times es­ti­mated profit for 11 U.S.-traded In­ter­net re­tail­ers, Bloomberg data show.

Ama­zon.com Inc. of Seat­tle, the biggest on­line mer­chant, trades at 39 times profit, the data show.

China Dang­dang, which op­er­ates the dang­dang.com web­site, in­creased sales by 56 per­cent in the first nine months of 2010 from the same pe­riod a year ago, its prospec­tus said. The com­pany plans to use pro­ceeds to broaden its prod­uct cat­e­gories and ex­pand its or­der fulfillment ca­pa­bil­i­ties.

China had an es­ti­mated 420 mil­lion In­ter­net users at the end of June, ac­cord­ing to data from the govern­ment-spon­sored China In­ter­net Net­work In­for­ma­tion Cen­ter.

The U.S. pop­u­la­tion in 2010 ranged from 305.7 mil­lion to 312.7 mil­lion, Cen­sus Bureau data show. China's econ­omy will grow 9.6 per­cent next year, ver­sus 2.3 per­cent for the U.S., ac­cord­ing to es­ti­mates from Washington-based IMF.

"In­vestors want to par­tic­i­pate in the growth of con­sumerism in China on the In­ter­net," said Peggy Yu Yu, ex­ec­u­tive chair­woman and co­founder of China Dang­dang, in a tele­phone in­ter­view from the NYSE. "That's be­hind their in­ter­est in the stock."

While four of the ten best per­form­ing U.S. IPOs of 2010 have come from China, shares of the last four main­land com­pa­nies that com­pleted sales had re­treated af­ter the govern­ment raised in­ter­est rates and bank re­serve re­quire­ments and said it may im­pose price con­trols.

Si­noTech En­ergy Ltd. which pro­vides equip­ment to boost oil field pro­duc­tion, posted the steep­est drop among Chi­nese IPOs since the Peo­ple's Bank of China raised lend­ing and de­posit rates in Oc­to­ber for the first time since 2007. The Bei­jing-based com­pany slid 19 per­cent Nov. 3, the largest first-day fall for a U.S. of­fer­ing this year, data com­piled by Bloomberg show.

The PBOC in­creased banks' re­serve re­quire­ments five times in 2010, while the govern­ment said on Nov. 17 it may im­pose price con­trols to com­bat the fastest in­fla­tion in two years. Three more Chi­nese IPOs are sched­uled for this week, data com­piled by Bloomberg show. Bona Film Group Ltd., the nation's largest pri­vately owned film dis­trib­u­tor, plans to sell 11.7 mil­lion ADRs for $7 to $9 each, its SEC fil­ing and data com­piled by Bloomberg show. -Bloomberg

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