The outlook remains optimistic for initial public offerings ( IPOs ) in China’s technology, media and telecommunications ( TMT ) sector, despite a slowdown in the number of listings and the value of funds raised in the first half of 2023, a new report finds.

Chinese TMT IPOs fell to 66 in the first six months of the year, from 124 in the second half of 2022, while total financing declined to 82.9 billion yuan ( US$11.4 billion ) from 133.5 billion yuan during the same period.

However, performance picked up in the second quarter, driven by the STAR and ChinNext markets, with the number of listings comparable to the same period in 2022.

China’s capital markets benefited from the full implementation of the new registration system in the first half of 2023. At the same time, the role of financial institutions as gatekeepers in the capital markets has also been strengthened and emphasized, PwC says in its Review and Outlook of China's TMT IPOs ( H1 2023 ).

The China Securities Regulatory Commission has issued several policies relating to capital markets, reflecting its determination to revive the A-share market and boost investor confidence. “Looking ahead to 2024, we believe that further policies will guide the long-term development of this market. As the Chinese economy recovers, innovative technology companies will gradually usher in new development opportunities,” says Jianbin Gao, PwC mainland China TMT industry leader.

Domestic listing preferred

The domestic capital market remained the main listing destination for mainland TMT enterprises in H1 2023, with the STAR Market accounting for 39% of the IPOs and ChiNext hosting 20% of the businesses.

The 26 TMT listings on the STAR Market secured 60.6 billion yuan, representing 74% of the total amount raised. On Shenzhen’s ChiNext, IPOs from the sector raised 14.2 billion yuan, or 17% of total financing. Another nine companies listed on the Beijing Stock Exchange, raising 1.2 billion yuan, or 1% of the total. Two companies on China’s Main Board secured a combined 2.8 billion yuan, or 3% of the total capital raised. Meanwhile, 16 mainland TMT companies opted to list in Hong Kong or overseas markets, raising 4.1 billion yuan or 5% of the total financing.

In terms of specific TMT segments, 42 IPOs ( 64% ) were in technology hardware and equipment, 20 IPOs ( 30% ) in software and services, and four IPOs ( 6% ) rom the media sector.

The average P/E ratio for TMT companies listed on the A-share market remained stable at 34x in H2 2022. However, the multiple rose 47x in H1 2023.

As of June 30 2023, the total market capitalization of the 230 TMT enterprises listed on the STAR Market had a combined market capitalization of 429.9 billion, with an average financing of 1.87 billion yuan and an average initial P/E ratio of 86x.

Since the first batch of listings on ChiNext in 2020, 464 companies have raised 458 billion yuan, with an average financing of 987 million yuan and an average initial P/E ratio of 38x.

Lower listing threshold

On Hong Kong’s Main Board, 33 mainland listings raised HK$17.8 billion ( US$2.27 billion ) at an average P/E ( excluding loss-making companies ) of 17x in H1 2023.

The Hong Kong Stock Exchange ( HKEX ) in March 2023 released consultation conclusions on the listing system for specialized technology companies, deciding to include Chapter 18C in the Main Board listing rules. “This further lowers the listing threshold for specialized technology companies that are still in the initial stage of commercialization or have not yet completed commercialization,” says PwC mainland China media leader Frank Cai.

“This provides a tailwind for enterprises in industries such as new generation information technology, advanced hardware, advanced materials, new energy, energy conservation, and environmental protection. It also demonstrates the determination of HKEX to attract technology companies to go public on the Hong Kong capital market,” Cai adds.

Moreover, the Hong Kong SAR government has formed a task force to promote stock market liquidity, a move that is expected to promote the sustainable development of Hong Kong's capital market and enhance its competitiveness.

Listings in the US stock market rebounded significantly in H1 2023, with 19 mainland Chinese companies raising a total of US$473 million at an average initial P/E ratio of 28x ( excluding loss-making companies ). Among these were six TMT enterprises which raised a combined US$299 million, or US$50 million each on average.

“With the implementation of rules for filing of overseas listings, the process for Chinese enterprises to list overseas has become more straightforward. This will provide more options and flexibility for mainland TMT companies seeking listings,” says PwC China assurance partner Alex Chan.