Telstra Corporation’s (ASX: TLS) decision to partly list its Chinese car sales website Autohome (NYSE: ATHM) on the New York Stock Exchange is paying dividends, with the shares soaring 77% on debut.
The rise of 76.9% in Autohome’s share price to US$30.07 values the company at around US$3 billion, but it could go much higher. Australia’s equivalent company Carsales.com (ASX: CRZ) is worth $2.3 billion, but our market is obviously much smaller than the Chinese car market. 20.3 million cars were purchased in China in 2012, Australia by comparison has only recently managed to sell 1 million cars annually.
Autohome is in its early stages of growth, generating RMB732.5 million (A$126 million) in revenues and reporting a profit after tax of RMB212.9 million (A$37 million) in 2012. That’s a very healthy profit margin, and the company is still reporting very strong growth in earnings of more than 60%.
As a result of the listing, Telstra’s share of Autohome has dropped from 71.5% to 66.2%, and the company could sell off more of its stake. Telstra wants to keep control of the company, and could sell down its stake to 39.3%, which gives it 51% of the voting rights, according to documents lodged with the US SEC.
Telstra bought 55% of Autohome’s parent company in 2008 for around $76 million, with its current stake worth more than $2 billion. Not a bad return in anyone’s terms!
With growth in Australia for telecommunications companies hard to come by, one of Telstra’s strategies has been to ramp up its Asian exposure. Telstra says the Asian region presents a huge market opportunity with its growing middle class, rapid urbanisation and strong economic growth. Half of the world’s internet users live in Asia, according to Telstra.
Additionally, the company is expanding into e-health, network services, digital media and global applications and platforms.
So far Telstra is showing its rivals Optus – owned by Singapore Telecommunicaitons (ASX: SGT) – and Vodafone – partly owned by Hutchison Telecommunications (ASX: HTA) – a clean pair of heals. The success of Autohome suggests Telstra is likely to pull further away.