China’s Meituan Dianping announced in an updated version of the prospectus on Tuesday it has recorded gross profits of 903 million yuan for the first four months of this year, more than double compared to the same period of last year.

It is undoubtedly good news, but might not be good enough to cheer up its potential investors.

Meituan Dianping sought to raise as much as $4.5 billion in its initial public offering (IPO) in Hong Kong with an indicative price range of HK$60 to HK$72 per share, according to sources close to the deal.

The valuation of the company could reach up to $55 billion, almost triple of the worth when the two on-demand service providers Meituan and Dazhong Dianping merged in 2015, and double of the valuation in the last fundraising round last year.

The debut of China’s biggest online food delivery-to-ticketing services platform by market share comes at the moment when a negative investor sentiment is looming over the market amid escalating global trade tensions and instability of a weakening economy.

Analysts doubted the fundraising result by the China’s Yelp, as the smartphone maker Xiaomi<1810.HK> and telecom giant China Tower<0788.HK>, top two widely-anticipated IPO of this year, priced their stocks both at the lower end of the pre-set ranges. The final valuation of Xiaomi reached only half of the market expectation through the offering.

The current trading conditions are not much favorable for Chinese tech firms. The shares of the gaming and social media giant Tencent Holdings Ltd<0700.HK> have dipped around 19 percent year to date.

Investors might continue to adopt a wait-and-see strategy, as the market is dominated by pessimism, coupled with the retreat of capital from the Mainland China and the vast uncertainty generated by shaking currencies of emerging economies, said Chik Stanley, research manager of the Hong Kong-based Bright Smart Securities.

It will be the second IPO in the world’s third-largest stock market after Xiaomi with a dual-class share structure, which gives a set of shareholders greater voting rights, designated to lure tech companies and new economy giants to go public in the city.

But Mainland regulators have not yet allowed its domestic investors to trade stocks with such structure through the Shanghai- and Shenzhen-Hong Kong stock connect scheme, which has cooled the market heaters.

Bubbles burst before they quickly blew up as Xiaomi hit the initial offering price at the first trading day. Many analysts believed Xiaomi was overvalued, since it could not be defined as an internet company by its core business.

After the IPO hearing at the Hong Kong Exchange, several international investment banks lifted their valuation of Meituan Dianping. Goldman Sachs quoted a price of $57 billion and Morgan Stanley voiced a $1 billion plus.

Beijing-based advisory firm T.H. DATA Capital LLC has announced the highest valuation of $64.5 billion, considering its mass business model that connects millions of consumers with restaurants powered by the scorching artificial intelligence (A.I.), said its CEO Hou Xiaotian in her blog.

Financing problems had forced a series of Chinese new economy firms to run to Hong Kong exchange or Nasdaq for IPO since the last quarter of 2017. A record more than 200 companies have filed with the Hong Kong exchange to get listed in the city this year, with hope to raise around HK$300 billion, according to the estimate by the research house PWC.

But not all the companies could generate tidy returns for their investors.

Meituan Dianping, since its restructuring in 2015, has not yet turned from red to black without recording a positive annual income, even though the loss has been narrowing to 2 billion yuan (adjusted) in 2017 from 5.9 billion yuan two years ahead, according to the prospectus of the company.

Pessimists worry a downward price adjustment should follow its IPO, as the company’s price-to-sales ratio, a gauge of the investment value of a stock, hiked around 11, calculated with the revenues of last year, surpassing those of both Alibaba and Tencent.

But worries could also be excessive, as the company reported a four-month revenue of 15.82 billion yuan on Tuesday’s prospectus, almost double the results of the same period in 2017.

Strong momentum shown by the latest figures is a shot in the arm that helps the company convince the investors.

The food delivery and on-demand service is a costly business that could be backed by a great amount of cash for developing distribution networks and offering stimulus subsidies.

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Three delivery men of Ele.me, Meituan and Baidu are waiting for the food ordered via their online platforms outside the kitchen of a restaurant. Source: Weibo.com

Meituan Dianping’s rival Ele.me has poured one billion yuan each month from this July to September on subsidies and marketing in a bid to lift the market share, as the competition in this sector reaches fever pitch and with steep cost of winning customers.

Oligopolies emerged in the market to support the competition, with Alibaba’s purchase of Ele.me in April after it merged with Baidu’s food delivery sector. Meituan Dianping has been surpassed immediately by the cluster who has grabbed collectively a bite of 51 percent in 2017, according to a report by BigData Research.

The e-commerce leviathan Alibaba Group Holding Ltd has also helped its subsidiary to make the deal with the coffee chain Starbucks to offer food and beverage delivery service to its customers, which held Meituan’s nerve.

“They (Alibaba) wanna cause troubles to us,” said Wang Xing, CEO of Meituan Dianping in a previous interview. Alibaba has still stake of less than 1.5 percent in Wang’s Meituan.

The cost of food delivery service providers has significantly surged, which has faltered the growth of catering industry, said the China Cuisine Association.

Both the two blocks have been seeking expansions towards other businesses including ride-hailing service, tourism, offline retail sales, with the support from their parents and more importantly, the cash.

The Tencent-backed firm also reported in its roadshow filings a cash reserve (cash and cash equivalents) of around 26.27 billion yuan in its account at the end the April, increasing by 6.86 billion yuan compared with the end of last year.

“Meituan is targeting at a bunch of users that could also be users of our ride-hailing and retail services,” said its leader Wang. “We have enough cash to back our multi-business blueprint.” The company had 310 million users in 2017.

Tencent, owner of China’s most popular social media, holds more than 20 percent stakes in Meituan Dianping, and has said to subscribe a $400 million worth of stocks among all five cornerstone investors.

Global asset manager Oppenheimer Funds will commit $500 million and other cornerstone investors include the UK-based hedge fund Lansdowne Partners, U.S. hedge fund Darsana Master Fund LP and Chinese state-owned conglomerate China Chengtong Holdings Group.

Bank of America Merrill Lynch, Goldman Sachs Group Inc and Morgan Stanley are sponsors of Meituan’s IPO. China Renaissance is the financial adviser.

(Updated on Sept. 4, Tuesday, with the latest financial results of the four months ended April 30, 2018, announced on Tuesday in the prospectus by Meituan Dianping. The original story was published on Sept. 3.)

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