As the "third in command" in the field of precision manufacturing of engineering plastic castings, "going public and reaching the peak" has become the most appropriate label for Uplive Holdings (08529) in the past two weeks.

As the first company listed on GEM since the GEM reform came into effect, the market heat of Uplive Holdings is evident. Market data shows that the subscription for Uplive Holdings is abnormally hot. Among them, the allotment is oversubscribed 2,503.03 times, and the public offering for retail investors is oversubscribed 2,262 times, making it the fifth new stock with the highest oversubscription ratio in the history of Hong Kong stock market.

However, the stock price trend after its listing is in sharp contrast to the popularity before its listing. As observed by the Finance and Economics APP, on the first day of listing, Uplive Holdings opened sharply higher, rising more than 35% at one point, hitting a high of HKD 0.68 and still closing up 6% on the same day. Since then, the stock price of Uplive Holdings has been like sitting on a "slide," continuously falling and hitting new lows. As of the closing price on June 14th, the stock price of Uplive Holdings was HKD 0.375 per share, a decrease of 25% compared with the issue price of HKD 0.5.

What is more lamentable is that the company seems to have been forgotten by the market funds. According to the data of Finance and Economics APP, the daily turnover of Uplive Holdings on June 14th was less than HKD 1.4 million, a new low since its listing.

What happened behind the market funds' "abandonment" of the hot new stock, Uplive Holdings?

Revenue fluctuation, declining profits.

Let's start with its fundamentals. Finance and Economics APP noted that Uplive Holdings was established in 2005 and is a manufacturer of downstream semiconductor transmission media engaged in the manufacture of engineering plastic casting precision products. In recent years, the company's revenue mainly comes from the sale of trays and tray-related products, which account for more than 90% of its revenue.

According to Frost & Sullivan's report, as of the years ended December 31, 2021, 2022, and 2023, trays and tray-related products had a market share of 31.3%, 31.8%, and 31.7%, respectively, in the downstream semiconductor transmission media industry. Among all manufacturers of trays and tray-related products in the downstream semiconductor transmission media industry, the company ranked third in sales revenue in 2023, with a market share of about 8.4%.

Despite its leading position in the industry, the company's performance has been continuously fluctuating. Finance and Economics APP noted that Uplive Holdings' revenue in 2021, 2022 and 2023 was approximately HKD 203 million, HKD 258 million, and HKD 189 million respectively, showing a downward trend of fluctuations.

The company admitted that this was mainly due to the decrease in sales volume of tray products due to the slowdown in semiconductors and the ban on US purchases, as well as the decrease in the average selling price of tray products.

Specifically, the overall sales volume of trays and tray-related products during the reporting period were 24.5 million, 28.4 million, and 20.9 million, with year-on-year growth rates of 15.9% and -26.4%, respectively; the average selling prices of trays and tray-related products were HKD 7.99, HKD 8.71, and HKD 8.25, with year-on-year growth rates of 0.72 and -0.46.

Against this background, the revenue scale of the company's main products has continued to decline. During the reporting period, the revenue of the tray and tray-related products of the company were HKD 195 million, HKD 247 million, and HKD 172 million, accounting for 96.3%, 95.9%, and 91.2% of the total revenue, respectively. It is worth mentioning that the revenue and revenue ratio of MEMS and sensor packaging of the company during the period achieved growth, increasing significantly from HKD 7.152 million in 2021 to HKD 16.508 million in 2023, and accounting for 8.7% of total revenue, up from 3.5%, although the size of this business is still small and has not been established.

Affected by these factors, the company's profitability has also declined continuously. During the reporting period, the gross profit margin and net profit of the company were approximately 42.71%, 39.55%, and 38.09%, respectively, with a significant drop in net profit from HKD 26 million in 2021 to only HKD 5 million in 2023.

Under the low liquidity, the GEM reform is in progress.

In addition to the fluctuations in its fundamentals, the lack of liquidity on GEM may be related to the current decline of Uplive Holdings. Finance and Economics APP noted that GEM-listed companies are generally small or medium-sized companies, with poor liquidity compared to companies listed on the Hong Kong main board. Currently, there are 324 companies in the GEM sector of the Hong Kong stock market. As of June 14th, nearly half of them were in a state of "zero turnover." Even if there is turnover, the turnover rate of most stocks is extremely low. Industry insiders pointed out that the key to revitalizing the GEM market is to improve the quality of listed companies from the source and attract investors' attention to the GEM sector of the Hong Kong stock market.

CITIC Securities has pointed out that the low turnover rate of small and medium-sized companies' stocks is one of the important reasons for the overall low liquidity level of the Hong Kong stock market. To improve the trading situation of the secondary market of small and medium-sized companies' stocks, it is inseparable from the screening and quality control of assets.

China Securities Co., Ltd. has pointed out that the low turnover ratio of small and medium-sized market cap stocks is one of the important reasons for the overall liquidity level of the Hong Kong stock market lagging behind other markets. To promote the improvement of secondary market trading conditions for small and medium-sized market cap stocks, strict screening and quality control on the asset side are essential.

Hong Kong Securities and Futures Commission Chief Executive Officer, Ashley Alder, has also emphasized that to enhance the attractiveness of the GEM board, the issue of investor demand and liquidity must first be addressed, because even with more companies joining, it is unlikely to boost Hong Kong's listing market if investors lack interest and thus lead to low stock liquidity.

In order to activate the GEM market, the Hong Kong Stock Exchange has actively promoted GEM reform in recent years to support the listing financing of high-quality small and medium-sized enterprises. On January 1, this year, the new GEM listing rules officially took effect. From the listing rules after the GEM reform, a simplified transfer mechanism has been reintroduced, and eligible GEM issuers can transfer to the main board without reappointing sponsors and conducting due diligence; new listing standards for "market value/income/R&D testing" have been added to support high-growth enterprises engaged in R&D activities; the lock-up period for controlling shareholders after listing has been shortened to 12 months; the mandatory quarterly performance disclosure requirement has been cancelled, and other continuing responsibilities are consistent with those of main board issuers.

Huaxia Securities in Hong Kong said that from the direction of Hong Kong's GEM reform, the Hong Kong Stock Exchange has shortened the lock-up period of controlling shareholders of GEM issuers from 24 months to 12 months after listing, which is conducive to improving liquidity, because new applicants have more shares that can flow in the market ahead of time. In addition, the cancellation of the mandatory quarterly reporting requirement can reduce the compliance cost of enterprises and increase the attractiveness of listing. Enhancing market transparency and regulatory efforts can enhance investor confidence in the market. With the Hong Kong Stock Exchange signing cooperation memorandums with more international exchanges, more international small and medium-sized enterprises and international funds are expected to enter the GEM market.

Overall, it seems that the mission to activate the vitality of the GEM market is still a long way to go, but with Guangdong Jixing National Control Testing reapplying for listing on June 11 and Elementus Technology passing the GEM listing hearing on June 13, the new army of GEM listed companies under the new GEM listing rules is gradually growing, and the attractiveness of the market is expected to be enhanced.

However, regarding UMC's specific situation, with the dual impact of the slowdown in demand in the semiconductor industry and the US procurement ban, the company has fallen into the dilemma of declining revenue and net profit. Although the company has stated that the growth rate of customized product orders has increased since this year, and it is expected that the overall financial performance of the company in the first half of this year is unlikely to deteriorate significantly, everything is still uncertain until specific data is available. In this regard, the stock price trend of UMC "listing at its peak" is not surprising.