Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

My father once told me you'll never have trouble selling something that makes people feel good.

Investors in China agree, piling into shares of the beauty-app maker Meitu Inc. since they qualified for an equity-trading link that was opened between exchanges in Hong Kong, where the company is listed, and Shenzhen just across the border.

Pretty Big Rise
Meitu's Hong Kong-listed stock has taken off since mainland investors got access via the Shenzhen Connect
Source: Bloomberg

The result is a 47.2 percent gain in the stock so far this month, and one new Chinese billionaire in co-founder and CEO Wu Xinhong, Sterling Wong of Bloomberg News reported, citing data from the Bloomberg Billionaires Index.

Based in Xiamen, southeastern China, Meitu is famous for an app that doctors photos to let you look taller, skinnier, acne-free, and generally feeling happier about yourself. It also sells smartphones, and because there's not much money in apps, it's actually the phones that bring in around 95 percent of revenue.

On first appearances, not much has changed at Meitu in the past month. There have been no major announcements or earnings reports. The flagship offering has remained around the top of the photo and video categories of various Chinese app stores, where it always was.

The thing that has changed is that suddenly, hordes of people who know, use and love the product can now buy the stock. Because China is such a retail-driven market, compared with the more institutional profile of Hong Kong investors, mainland access was like opening the doors of a candy store.

Popularity Contest
Meitu quickly became one of the most actively traded stocks in the Hong Kong-Shenzhen Stock Connect program
Source: Hong Kong Stock Exchange
Note: Ranking is by total trading value for the southbound connect.

Meitu was the most active stock for Shenzhen investors on the Hong Kong exchange, with more than HK$33 million ($4.3 million) in buy trades recorded over the southbound connection on March 7, according to exchange data. That helped drive the price 11.7 percent higher, with even more buy trades the following day.

Since then, Meitu has regularly placed in the daily top 10 published by the Hong Kong exchange, despite its market value being dwarfed by established names like Air China Ltd., Bank of China Ltd. and Tencent Holdings Ltd.

The demand has pushed the stock's price to book value to around 7.9 times, above the 6.6-times median of peers, though not exorbitantly out of whack. (A ratio to earnings isn't possible because the company hasn't posted any.)

Although the few analysts who cover the stock expect sales to more than double this year, not one is holding out the hope of breakeven by the end of 2017.

This means that just as for Snap Inc., the unprofitable maker of the Snapchat photo app whose stock listed in New York this month, investors probably aren't buying into Meitu because earnings are around the corner.

Maybe they're buying because it makes them feel good.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net