In the first three or four months of 2024, the Hong Kong IPO market almost reached a “freezing point”. Both the number of projects issued and the scale of capital raised hit new lows in many years. However, a “reversal” may be in the works.

Over the past month, the recovery of Hong Kong stocks has become the world's “biggest beneficiaries”, and the Hong Kong stock IPO market is also quietly changing. On May 24, Quzhi Group's dark market surged 92% and Shenghe Biotech rose 7.6% on the first day of listing; the three-year “no grain” GEM welcomed long-overdue applications; and the listing mechanism of 18C Special Technology is also expected to usher in a breakthrough.

According to Wind data, as of May 26, a total of 19 Hong Kong stock companies were listed this year, raising 9.26 billion dollars in capital raised and 7.68 billion HK$7.68 billion in net capital raised. Among them, the stock prices of 6 IPOs broke on the first day of listing, and most of the IPOs were concentrated in late March and April.

Fun dark market soared 92%, and Shenghe Biotech rose 7.6% on the first day

On May 24, one new stock was listed on the Hong Kong stock market, and one landed on the dark market, all of which reaped good gains, breaking the recent pattern where new stock listings broke out.

Among them, “AI Interactive Marketing Stock”, Quzhi Group's undercover trading was popular. The biggest intraday increase reached 92%. The brokers' undermarket eventually closed up 38.20% to HK$34.55, with a turnover of HK$6.7838 million, corresponding to a total market value of HK$9.076 billion, earning HK$1,910 per lot. On May 27, Quzhi Group will be listed on the main board of the Hong Kong Stock Exchange.

According to public information, Quzhi Group was founded in 2013 and is an artificial intelligence IoT marketing solution provider. Its model is to provide consumers with effective interactive machine marketing services through the development and operation of vending machines and equipped with various modules to achieve technology-driven interactive functions, including smell emission, motion recognition, and voice interaction.

It is worth mentioning that although vending machines are used as carriers, Quzhi Group mainly sells not drinks but advertisements, and marketing revenue accounts for 80% of its revenue. In terms of revenue in 2023, Quzhi Group is the fourth largest FMCG outdoor marketing service provider in China, with a market share of about 1.2%, while the largest market participant's market share is 14.3%.

On the same day, Shenghe Biotech from Anji County, Huzhou, Zhejiang was listed on the main board of the Hong Kong Stock Exchange.

Shenghe Biotech's current IPO sold 34.1518 million shares worldwide, with a sale price of HK$13.50 per share. The total capital raised was about HK$461 million, and the net proceeds were approximately HK$392 million. Shenghe Biotech was subscribed 10.08 times as much as part of this public offering.

Founded in 2018, Shenghe Biotech is a biopharmaceutical company that develops various types of immunotherapy, including antibody cytokines for the treatment of cancer and autoimmune diseases. According to Frost & Sullivan data, Shenghe Biotech is one of the world's leading companies in developing antibody cytokine products, and one of the few pioneers with the fastest clinically advanced antibody cytokine candidate products.

On the cornerstone side, Shenghe Biotech introduced Nanjing Economic Development Future Technology Industry Investment (Jingkai Future) as the cornerstone investor and subscribed for 3.0962 million shares to be sold, accounting for about 9.07% of the global sale shares and 1.98% of the total share capital after the completion of the global sale.

Is GEM's three-year “no particle revenue” expected to be broken?

After a lapse of three years, GEM, which had been deserted for a long time, once again welcomed applications, and the three-year “no revenue” is expected to be broken.

On May 22, 2024, Youbo Holdings passed a hearing and plans to go public on the Hong Kong GEM. The sole sponsor is Yuexiu Finance. This is also the first new stock that is expected to be listed on the Hong Kong stock GEM after three years of silence.

According to reports, Youbo Holdings is a back-end semiconductor transmission medium manufacturer engaged in precision manufacturing of engineering plastic castings. It has two production plants in Dongguan, and its revenue mainly comes from sales of trays and tray-related products. For the year ended December 31, 2021, 2022, and 2023, the market shares of trays and tray-related products in the back-end semiconductor transmission media industry were 31.3%, 31.8%, and 31.7%, respectively. Among all manufacturers of trays and tray-related products in the back-end semiconductor transmission media industry, it ranked third in the world in 2023, with a market share of about 8.4%.

Will 18C have a “breakthrough of zero”?

On March 24, 2023, the Hong Kong Stock Exchange launched a listing mechanism for specialty technology companies, also known as the 18C mechanism. So far, two companies, Black Sesame Intelligence and Jingtai Technology, have submitted listing applications through 18C. It is worth noting that although companies have applied, no company has been able to successfully list under this mechanism.

Han Yingjiao, senior vice president of the Hong Kong Stock Exchange and head of the China Listing and Distribution Service Department, said that the original intention of the Hong Kong Stock Exchange to launch 18C was not only to allow special technology companies to go public through this channel, but more importantly, to show the support of the Hong Kong Stock Exchange and the Hong Kong market for the five major strategic industries. Many companies that have submitted applications for listing on the Main Board or have already been listed initially intended to be listed according to 18C when they first came into contact with the exchange. However, these companies have strong commercialization capabilities and have met the listing requirements of Chapter 8 in just one or two years.

PricewaterhouseCoopers Hong Kong Capital Market Service Partner Chan predicts that about 3 to 5 companies will apply for listing in the Hong Kong market through Chapter 18C this year, and the average capital raising will exceed HK$1 billion.

Liu Bowei, co-head of China Investment Bank at J.P. Morgan Chase, recently said that the overall performance of Hong Kong stocks over the past five months was poor. The number of new shares was low, most were small in size, and the future market performance of some projects was not ideal. However, over the past month, the performance of the Hong Kong stock market has improved markedly, both in terms of trading volume and indices.

According to Liu Bowei, this change is mainly driven by two core factors: first, relevant policy support. Both the mainland and Hong Kong governments are promoting and boosting the Hong Kong stock market through various methods; second, judging from the flow of funds, foreign funds are indeed buying, which also has some support for the Hong Kong stock market. As a result, the Hong Kong stock IPO market in the second half of the year will be better than in the first half. In addition, Liu Bowei stressed that many years ago, the IPO window was probably one or two years, and when the market was very popular, a situation might occur, that is, at the time of final release, the market situation was even more ideal than the market situation during preparation for release. Will the market have a window in the future? There will definitely be, but this window probably won't be that long; it may only take two or three months, or even a month.

Editor/Jeffrey