(Yicai) Sept. 1 -- Baidu’s shares tumbled at the open in Hong Kong today and continued to trade below Monday’s closing price on the first trading day after the Chinese internet giant converted its listings on the Nasdaq and the Hong Kong Stock Exchange to dual-primary status.

Baidu’s share price [HKG:9888] closed down 2.6 percent at HKD93.70 (USD14).

Baidu, which went public in New York in 2005, completed a secondary listing on the Hong Kong bourse in 2021, with the Nasdaq remaining its primary listing venue. In July, Baidu’s board of directors approved the conversion to a dual‑primary listing structure and the Beijing-based company said on Aug. 27 that Sept. 1 would be the first trading day under the new listing arrangement.

One of the key reasons for Baidu to choose Hong Kong as one of its primary listing venues is to take full advantage of the Hong Kong Stock‑Connect mechanism, which allows cross-border trading between the Hong Kong bourse and the Shanghai and Shenzhen stock exchanges, so as attract more capital from mainland Chinese investors and provide greater support for its share price, industry insiders told Yicai. Only stocks that designate Hong Kong with primary‑listing status are eligible for inclusion in the Stock‑Connect program.

Baidu’s Chief Financial Officer Haijian He has previously said that the dual‑primary listing would help Baidu broaden its investor base and improve the liquidity of its shares.

Morgan Stanley estimates that Baidu’s Hong Kong stock could see net southbound capital inflows of between USD3 billion and USD6.8 billion within six to 12 months following inclusion in the Stock-Connect program, according to an earlier report released by the US investment bank which drew on the experience of US-listed Chinese internet giants Alibaba Group Holding and Bilibili whose Hong Kong-listed shares were also added to mechanism.

Mainland investors could collectively hold between 7 percent and 15 percent of Baidu’s Hong Kong‑listed shares within one year, Morgan Stanley said.

Earnings Pinch

Baidu’s share price has fallen sharply recently, dragged down by weaker performance in its traditional businesses and heavy spending on artificial intelligence. Its Hong Kong stock has lost around 29 percent of its value so far this year, and is down more than 40 percent from Jan. 23 when it hit the highest level in nearly three years. Its Nasdaq‑listed shares have seen a similar decline.

When Baidu completed its secondary listing in Hong Kong, its search engine and online advertising businesses were still the key metrics used by investors to assess the company. Five years later, however, revenue generated by its AI businesses has accounted for about half of total revenue for two consecutive quarters.

Baidu’s intelligent cloud infrastructure and AI assets such as its AI-chip subsidiary Kunlunxin are also attracting growing attention from investors. Kunlunxin began the process of a potential spin off and Hong Kong listing earlier this year.

Baidu, however, continues to face pressure from declining traditional businesses and heavy investment in AI. Revenue in the second quarter tumbled 4 percent from a year earlier to CNY31.3 billion (USD4.3 billion), below market expectations, while net profit plunged 68 percent to CNY2.3 billion (USD317.4 million).

Editors: Tang Shihua, Kim Taylor