Leapmotor’s modest IPO obviates big leap of faith

Vehicles are seen jammed on a express way near a toll station, at the end of the Mid-Autumn Festival holiday, in Zhengzhou, Henan
Vehicles are seen jammed on a express way near a toll station, at the end of the Mid-Autumn Festival holiday, in Zhengzhou, Henan province, China September 24, 2018. Picture taken September 24, 2018. REUTERS/Stringer

HONG KONG, Sept 27 (Reuters Breakingviews) - Leapmotor is cruising in gloomy markets. The Chinese electric-vehicle maker priced shares of its initial public offering, the largest in Hong Kong this year, at the bottom end of a previously indicated range, per IFR. The deal has emerged as more realistic than racy.

The $800 million offering values the company at $7 billion. That implies a forward price-to-sales multiple of three times similar to a basket of peers including Nio (9866.HK) and Xpeng (9868.HK) and assumes it continues to grow its top line at the same pace as last year. The implied revenue of $2.1 billion in 2022 is equivalent to roughly 75,000 deliveries of its popular C11 sports utility vehicle, or 170,000 of its cheaper T03 mini-car.

Since it sold nearly 44,000 units last year and has a track record of increasing sales around five times each year between 2019 and 2021, this ought to be well within reach. Chinese consumers are increasingly gravitating towards more affordable local brands too, according to a Bernstein survey released this month. Leapmotor’s sales in the first quarter fell a little short of the pace it needs to hit but its still within reach. (By Katrina Hamlin)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. Refiles to add coding.)

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