Tencent-backed Tongcheng-Elong gains 26% on HK debut

The stock opened at HK$10.78 on November 26, a 10% premium to its IPO price of HK$9.80, and then climbed further to close at HK$12.40. Tongcheng-Elong sold 165.4 million shares in the offering, 21.6 million above the official allocation, according to a filing. However, the pricing was lower than originally planned, with Tongcheng-Elong having set a range of HK$9.75-12.65.

The company was formed in 2017 through the merger of online travel agency Tongcheng Network Technology and hotel and flight booking site operator E-dragon Holdings, also known as eLong. It had 121.2 million average monthly active users as of year-end 2017. It ranked third in China's online travel market by gross merchandise value (GMV), with RMB80 billion ($11.5 billion) from transportation ticketing and RMB22.3 billion from accommodation reservations.

Revenue came to RMB2.5 billion in 2017, up from RMB2.2 billion the previous year, according to a prospectus. Over the same period, the company swung from a net loss of RMB2.16 billion to a profit of RMB194 million.

Tongcheng was backed by a number of private equity players, including Suzhou Ventures, which invested as early as 2010, and CITIC Capital, which joined an approximately $967 million round in 2015 alongside Tencent and Wanda Group. Other investors included Boyu Capital and Oriza Holdings.

As of 2016, Tongcheng was said to have a market value of $3 billion following a merger between one of its ticketing subsidiaries and a Wanda-affiliated travel company. In the same year, eLong was privatized by Ctrip, Ocean Link, and Tencent in a deal worth $660 million.

Following the offering, Tencent is the largest shareholder in the combined company with a 23.18% stake, followed by Ctrip with 22.61%. Ocean Link has 4.8%.

Tongcheng-Elong is one of a host of new economy businesses - most of which are focused on artificial intelligence, big data, and internet-enabled technologies - to list in Hong Kong this year. Over 20% of IPOs in the first three quarters of 2018 fit this profile, compared to less than 10% in 2017, according to KPMG.

However, the post-IPO performance of many of these companies has been disappointing. Contributing factors include a general weakness in the markets, uncertainty over loss-making business models, and underwhelming earnings. Meituan Dianping, for instance, plunged by 11.8% on November 23 after it reported that operating losses for the third quarter of 2018 had risen threefold year-on-year.

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• Topics
• Greater China
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• Exits
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• China
• TMT
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• Ocean Link
• Tencent