At a time when the popularity of “breaking new ground” remains high, a newly listed IPO broke out of the “roller coaster” market: Wuhan Organic (02881) opened high and went low on the first day of listing, with an intraday high of HK$10.30, an increase of 87.27%. At the close of trading, it was HK$7.02, and the final increase was 27.64%. In the following month, the company's stock price operation center continued to decline. By the close of trading on July 22, it had fallen below HK$5, and the trading volume had narrowed to less than 0.01 million.

Looking at the company's market trading situation after listing, retail investors are first locked in once the stock price falls after listing. According to the data, prior to listing, Wuhan Organic also received a lot of investors' attention. Among them, the Hong Kong public sale received 337.57 times the subscription, the international sale received 0.92 times the subscription rate, and the first-hand (500 shares) winning rate was 5.01%. Wuhan Organic is a small-cap new stock, raising only HK$0.101 billion, with a total market capitalization of less than HK$1 billion. The company's official allocation is 337.57 times. Normally, the callback ratio should be initiated to 50%, but due to insufficient national allocation, the final callback ratio is 17.78%. Most of the IPOs raised by bookmakers will increase the share price in the future, so the company's undercover market increase reached 71.64% before listing, closing at HK$9.44.

After the listing, the company's stock price went downhill. In terms of capital, the biggest net seller was Fuzhong. After selling 2 million shares on July 18, its shareholding ratio dropped from 7.7% to 5.49%, followed by Bank of Communications Trust, which continuously sold 0.274 million shares within 20 days after listing; the biggest buyer was Zhejiang Shang International, which bought about 1.9965 million shares, followed by Everbright's 0.1675 million shares and China Merchants Wing Lung Bank's 0.127 million shares. Looking at the shareholding ratio, retail shareholding ratio from Futu has risen from 0.2% to 0.6%. Most of them took over at a high level within the first three days of listing, while Zheshang International mainly bought under HK$5 on July 18, or wanted to go to the bottom of the market.

According to information, Wuhan Organic is a well-known supplier of toluene derivatives in the Chinese and global markets. It mainly focuses on manufacturing toluene oxidation and chlorination products, benzoic acid ammonium products, and other fine chemical products through organic synthesis processes. The company's toluene derivatives are mainly used in food preservatives, household chemicals, animal feed acidifiers, and synthetic intermediates for agricultural chemicals and pharmaceuticals. However, part of the reason why the company's current IPO “starts at its peak” is that investors are not optimistic about the company's long-term prospects. This can be seen from the company's fundamental situation.

Overcapacity in the industry is dragging down performance

According to public information, the predecessor of Wuhan Organic Holdings can be traced back to 1946. The company's first operating subsidiary, Yisheng Salt Hankou Branch, was established. It was later restructured and renamed Wuhan Organic Synthetic Chemical Factory in 1966. In 1994, the Wuhan Organic Synthesis Plant was restructured as a limited company and renamed Wuhan Organic Industrial Co., Ltd.

As early as 2005, Wuhan Organic tried to enter US stocks through a “reverse merger and acquisition”, but it was unsuccessful due to regulatory regulations; in June 2022 and February 2023, the company also submitted listing applications to the Hong Kong Stock Exchange twice, but they all expired due to expiration.

After much hardship, it was successfully listed, but the prospects were not favorable to investors. The main reason for this may be due to the company's weak fundamentals. According to the Zhitong Finance App, in 2023, Wuhan Organic's revenue and net profit both showed clear signs of decline. Among them, net profit fell by nearly 80% year on year, and net profit for the whole year was still less than 0.1 billion yuan.

According to the prospectus, for the year ended December 31, 2021, 2022, and 2023, the company generated revenue of 2.79 billion yuan, 3.134 billion yuan and 2.677 billion yuan (the unit is RMB, same below), and net profit of 0.309 billion yuan, 0.341 billion yuan and 72.9 million yuan respectively during the same period.

However, the average sales price and gross margin of the company's homemade products declined continuously during the reporting period. The average sales prices were 8,909 yuan/ton, 8,536 yuan/ton, and 7,957 yuan/ton respectively. The gross margins of homemade products were 28.7%, 24.3%, and 14.1%, respectively. Among them, the gross margin of homemade products fell 10.2 percentage points year on year in 2023.

Sales of the company's main products are unfavorable, which has a certain relationship with overcapacity in the industry. According to Frost & Sullivan data, in 2022, global benzoic acid production capacity is about 0.75 million tons, sales volume is 29.55 tons; global sodium benzoate production capacity is about 0.33 million tons, sales volume is about 0.2153 million tons; global benzyl alcohol production capacity is about 0.256 million tons, and sales volume is about 0.1992 million tons.

It is worth noting that the balance ratio of Wuhan Organic increased dramatically. The balance ratio during the reporting period was 29.2%, 46.6%, and 61.3%, respectively. Among them, the balance ratio of the company in 2023 was 32.1 percentage points higher than in 2021.

Furthermore, the large dividends before the company went public also added a bit of doubt to the market. According to public information, in February, December 2022, and 2023, Wuhan Organic declared dividends of 1.013 billion yuan, 89.8 million yuan, and 0.27 billion yuan respectively, for a total of about 1.373 billion yuan. However, the total capital raised by the company in this IPO is about HK$0.101 billion, and the net proceeds are about HK$25.85 million. Compared with previous huge dividends, investors are not prohibited from questioning the need for the company to raise capital in this listing.

According to information, the company plans to use the net proceeds from the global sale for the following purposes: of this, about 82% will be used to build new production facilities focusing on the production of toluene chloride products and derivatives to increase the production capacity of the Xinxuanhong production base in Hubei; about 5% will be used for sales and marketing activities to enhance the company's brand awareness in China and overseas; about 10% will be used for the company's working capital and general corporate purposes, including raw material procurement and inventory management.

Behind the new “money-making effect”, we need to be wary of short-term speculative risks

According to the Zhitong Finance App, in recent years, it is not uncommon for individual stocks to be “short-lived” after listing, such as Wuhan Organic. For example, the issue price of Chenyi Smart (301578.SZ), which was listed in December last year, was 48.94 yuan, rising to 95.88 yuan after listing, and has only risen in 4 days after listing. Up to now, it has fallen to around 36 yuan; for example, the issue price of Western Digital Energy (603312.SH), which was listed in January this year, reached a high of 53 yuan on the first day, then fell sharply for 4 consecutive days. It has now fallen to around 25 yuan. The “changed face” stock price has caused many high-ranking retail investors to get locked in.

Judging from fundamental financial data, Wuhan Organic not only has poor performance, but is also in the traditional cyclical chemical industry. The situation of overcapacity of its core products in the market is difficult to change in the short term. Under the influence of various negative factors, the company's long-term development prospects are not promising. Therefore, the increase in Wuhan Organic's stock price on the first day of listing was due more to excessive market speculation about IPOs and investors' optimism, and when investors left the market profitably, the subsequent decline in stock prices was naturally to be expected.

According to the data, fresh sentiment in the July market continued to heat up. From July 1 to July 15, over 60% of the 14 IPOs listed on the Hong Kong stock market closed up on the first day, and 4 of these stocks rose by more than 25% on the first day.

Behind the fluctuation in Wuhan Organic's stock price, the risk of widespread market speculation and intense short-term speculation is also reflected. At a time when the concept of “making new money” is being widely sought after by investors, many retail investors often have insufficient awareness of the risks after IPOs are listed, causing the stock prices of some IPOs to seriously deviate from intrinsic value, and incidents where stock prices plummet after following the trend and hype are common.

At the end of the day, stock prices depend on market supply and demand, and only fundamental performance reflects the true intrinsic value of an enterprise. The organic “roller coaster” market in Wuhan is not the only example. Investors should pay attention to risk control, objectively and rationally analyze and evaluate listed companies, and avoid blindly following the trend.