11 Aug

Will This IPO Define the Chinese Stocks Crackdown?

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President Trump is ratcheting down on Chinese stock listings in the U.S…

And at the present, Chinese companies are scrambling to go public before new auditing rules take effect. 

If the new rules set forth by Trump take effect in coordination with the SEC, Chinese companies intending to go public could face scrutiny right away. 

Existing companies will have until 2020 to provide greater transparency in their accounting. 

But if there’s ever a clear indication of U.S. investor sentiment to Chinese stocks right now, the IPO taking place tomorrow would be the best place to look. 

That company is KE Holdings (BEKE), and it’s the largest Chinese listing in New York this year. 

KE Holdings, founded in 2001, is also China’s largest online real estate platform. 

It could be worth up to $2B after the IPO.

While I think it’s important to exercise a certain degree of caution when trading Chinese stocks right now, I’m keeping an eye on this one. 

The stock has strong underwriting led by Goldman Sachs, and I may consider jumping into it at the right price. 

I want to reveal why I think this stock could perform well and how it’s riding a particularly favorable trend right now.

 

KE Holdings’ Digital Platform Will Enable Social Distancing in Real Estate


China’s residential real estate market is massive.

And it’s currently a leading driver of the economy in China.

That means that the potential for digitizing it will be equally enormous.  

Not only is this digital trend the way of the future, but I feel that the current circumstances of the pandemic will have a positive effect on the BEKE IPO. 

KE Holdings offers an online residential real estate transaction system.

It will enable agents and residential customers alike a way to more efficiently create and search for real estate listings. 

The online platform promotes the sharing of information and resources between agents and other service providers especially. 

Their system includes over 456,000 agents.

By allowing a seamless online experience, in-person activities can be kept to a minimum. 

But the proof is in the pudding really. 

KE Holdings had on average 39 million mobile monthly active users each month in April, May, and June of 2020.

The scope of KE Holdings is impressive. 

Their database covered roughly 226 million homes as of June 30, 2020.

Those homes spanned over 100 cities within China. 

 

BEKE Could Debut Strong, Thanks to Reasonable Pricing  


I’m liking the growth of KE holdings, as it’s showing a solid trajectory and transition to positive operating profits and net results. 

I’m also liking how the company plans to use the proceeds from its sale.

They intend to do more research and development, specifically with regards to “infrastructure technologies including big data, artificial intelligence, and virtual reality.”

That’s in addition to expanding its new home transaction services, diversifying its services, and broadening into even more regions within China.

The company intends to sell 106 million American depositary shares between $17 to $19 apiece when it goes public tomorrow.

I’m optimistic about the pricing for this IPO for two reasons. 

One, there’s a lot of investor support. 

Tencent, Hillhouse, Sequoia Capital, and Fidelity are among the existing investors who have proposed to acquire an aggregate of $800 million of the shares made available.

Two, the deal will have strong underwriters. 

Goldman Sachs (Asia) LLC, Morgan Stanley & Co. LLC, China Renaissance Securities (Hong Kong), and J.P. Morgan Securities LLC will lead the listing. 

IPOs led by Goldman Sachs, in particular, have seen average returns of 82%  over the last 12 months. 

Given the reasonable IPO pricing expectations combined with the growth of KE Holdings, it’s dominance in Chinese real estate, and it’s investor support, I think we could see a strong debut. 

I’m going to wait until the IPO tomorrow to see how the company prices and how demand plays out before jumping in, but my premium IPO Payday subscribers will be the first to find out if I do. 

If you want to learn about how I’m attacking this exciting corner of the IPO market, check out my upcoming IPO trading workshop here.

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