Analysis & Comment

China's Kingsoft sees stock pop in U.S. market debut

(Reuters) – Shares of China’s Kingsoft Cloud Holdings Ltd KC.O jumped over 25% on its U.S. market debut, indicating strong investor interest at a time when capital markets globally have been roiled by an economic crisis from the COVID-19 pandemic.

Beijing-based Kingsoft opened at $20.37 per share and rose to as much as $22.02 in early trade.

Kingsoft is the first major initial public offering in the United States since early March. The company raised $510 million after pricing its IPO at $17 per American depositary share (ADS) in the middle of its marketed range, valuing it at roughly $3.7 billion.

The cloud services provider increased the size of the deal to 30 million ADS from 25 million due to better-than-expected demand from shareholders.

Kingsoft’s services include cloud infrastructure as well as enterprise cloud and artificial intelligence of things. Cloud computing has so far been one of the sectors boosted by the novel coronavirus outbreak, as it drives more businesses to operate digitally and rely on cloud services.

“People are staying at home. Obviously the data consumption is really great. It’s actually very natural we are seeing the increase of data usage, of the cloud business, (with) COVID-19,” Kingsoft Chief Financial Officer Henry He said in an interview.

The IPO is also the first gauge of U.S. investor demand for Chinese companies going public after a fraud scandal sent shares in Chinese coffee chain Luckin Coffee (LK.O) into a free-fall last month.

Following Luckin’s fallout, the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board (PCAOB) issued a joint statement warning investors against Chinese companies with regard to risks, including financial reporting.

Kingsoft’s earnings have been audited for years as a subsidiary of Kingsoft Corp (3888.HK), which is listed on the Hong Kong Stock Exchange, a benefit to Kingsoft amid the Luckin fallout, finance chief He said.

“We want to be good citizens in the global capital market.” He said.

Kingsoft’s estimated revenue for the first three months of 2020 was between 1.35 billion yuan ($190.41 million) and 1.4 billion yuan, a year-on-year increase in the range of 59.6% to 65.5%. The company incurred a net loss of 1.1 billion yuan in 2019, compared with a net loss of 1 billion yuan in 2018.

JPMorgan, UBS, Credit Suisse and China International Capital Corp Ltd (CICC) were the lead underwriters for the IPO.($1 = 7.0901 Chinese yuan renminbi)

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