Raising Over $3 Billion, Baidu Climbs 1.6% in Hong Kong Trading Debut

Last week, Baidu announced the pricing of the global offering of 95,000,000 new Class A ordinary shares for its Hong Kong secondary listing, expecting to raise approximately $3.1 billion in what would be the biggest Hong Kong secondary listing by a Chinese U.S.-listed company in Hong Kong since fellow internet giant NetEase (Nasdaq: NTES) completed its share sale in June 2020, raising HK$24.3 billion.

Today, in the much-anticipated debut, Baidu did not disappoint; the stock opened nearly 2% to HK$256 per share in Hong Kong.

The final offer price has been set at HK$252.00 per offer share. Based on the ratio of eight ordinary shares per Nasdaq-listed American depositary share ("ADS"), the offer price translates to approximately $260.01 per ADS.

For Baidu, there's also a 30-day greenshoe option that allows the international underwriters to purchase an additional 14.25 million shares. BofA Securities, CLSA, and Goldman Sachs are the joint sponsors on the deal.

Baidu intends on using the proceeds from the offering to grow its mobile ecosystem, improve and diversify monetization, invest in technology, and enhance the commercialization of its innovations "centered around" artificial intelligence. It also plans on using a portion of the funds for working capital and general corporate purposes.

Over the past 12 months, Chinese U.S.-listed firms have been flocking to Hong Kong. Some other potential upcoming Hong Kong listings involving Chinese U.S.-listed companies are music conglomerate Tencent Music Entertainment Group (NYSE: TME) and the nation's largest microblogging platform Weibo (Nasdaq: WB).

Baidu's EV Play

Even before the excitement surrounding its Hong Kong listing, Baidu's stock was beginning to move in the right direction after a pullback on rising interest rates and China's intensifing antitrust crackdown. News of the company's entry into the electric vehicles (EV) market through a strategic partnership with one of the largest auto manufacturers in China, Geely Holding, sent the stock higher.

According to the announcement, Baidu will provide the technology, or the software, that powers the EV, while Geely will be a strategic partner that helps with the design and the manufacturing of the EV, given its expertise in automobile production.

Following news of the Geely partnership, local news reported that Baidu appointed Xia Yiping, the co-founder and chief technology officer of bike-sharing platform Mobike, as the CEO of the new EV company. Xia served as Mobike's chief technology officer until the company was acquired by food delivery giant Meituan in 2018.

Recently, former Uber China executive Luo Gang also joined JIDU Auto, the electric vehicle (EV) joint venture between Baidu and Geely. With a degree in electrical engineering from Tianjin University and an MBA from the London Business School, Luo Gang spent nearly three years establishing Uber China's business before it was acquired by Didi Chuxing in 2016, according to an introduction from Airbus.

In the vehicle space, Baidu also recently became the first Chinese company to secure a permit in both California and China to test driverless vehicles without a safety driver behind the wheel on public roads. Meanwhile in China, Apollo now holds 199 autonomous driving licenses.

A Leading AI Company

For the first half of 2020, Baidu was ranked first in China's AI public cloud market, a report from global market intelligence firm IDC shows. That marked the third time Baidu has clocked in first on IDC's list.  The market for AI cloud services in China was valued at $166 million in 2019. IDC projects a compound annual growth rate of 93.6% between 2018 and 2024.

A leader in AI, Baidu holds the most AI-related patents and has filed the most AI-related patent applications of any company or organization in China, according to a recent study published by two units of China's Ministry of Industry and Information Technology (MIIT).The company has been granted 2,682 AI-related patents and has filed a total of 9,364 AI-related patent applications as of October. Baidu's patent applications were followed by Tencent(8,450), Huawei (7,381), and Inspur (7,052), according to the report jointly issued by the China Industrial Control Systems Cyber Emergency Response Team and the Electronic Intellectual Property Center, two units under the MIIT.

"As we enter 2021, Baidu is well positioned as a leading AI company with strong Internet foundation to seize the huge market opportunities in cloud services, autonomous driving, smart transportation, and other AI opportunities," Robin Li, the co-founder and chief executive officer of Baidu, said in the latest earnings press release.

He added, "We also hope to capitalize on our huge Internet reach with more non-marketing services."

Baidu's PaddlePaddle

Baidu's PaddlePaddle is the first open-source deep-learning platform in China, similar to mainstream AI frameworks - Google's TensorFlow and Facebook's PyTorch. PaddlePaddle, which was open sourced in 2016, provides software developers of all skill levels with the tools, services, and resources they need to rapidly adopt and implement deep learning at scale.

According to a MIT technology review published last June, PaddlePaddle is being used by more than 2.65 million developers and 84,000 enterprises globally. Industries throughout China are using the platform to create specialized applications for their sectors--from the automotive industry's acceleration of autonomous vehicles to the health-care industry's applications for fighting Covid-19.

Still Undervalued

With tensions between the U.S. and China continuing to rise, even big well-known companies like Baidu are undervalued compared to their American counterparts. Undervalued on the Nasdaq, Baidu and other China giants are increasingly looking to Hong Kong and other capital markets in hopes of a fairer valuation.

Just how undervalued is Baidu? Well, the 38 analysts offering 12-month price forecasts for Baidu have a median target of 356.07, with a high estimate of $446.42 and a low estimate of $198.74. The median estimate represents a +33.7% increase from the last price of $266.13.