With a daily increase of over 30%, kingfarproperty (01354) is undoubtedly the most eye-catching stock in the Hong Kong market recently.

On November 19, kingfarproperty saw a strong surge during trading, rising from over 3 points to 10 points and then to 20 points. The stock experienced a significant stepwise increase, closing with a rise of 33.10%, leading the Hong Kong stocks, priced at 37.8 HKD, with a trading volume of 2.7861 million HKD, and the latest total market cap being 2.52 billion HKD.

Moreover, looking at a longer time frame, kingfarproperty's stock price can be described as a "rainbow road" – from October 31 to now, the stock has accumulated a rise of over 187% in just 14 trading days, with increases of 17.96%, 28.29%, and 25.91% recorded on October 31, November 6, and November 15 respectively.

However, compared with its previous sharp decline, it is indeed a "world of difference". On September 20, kingfarproperty opened low and continued to decline, with a drop of 17.11% at one point during trading. The stock closed that day at 17.58 HKD, down 9.38%. Furthermore, on September 12, the stock faced a "black Thursday", with its single-day drop reaching 26.58%.

After a dramatic decline comes a dramatic rise, and the roller coaster-like trend of kingfarproperty surely attracts attention.

As the saying goes, unusual occurrences must have their reasons, and now kingfarproperty has surged again; there must be secrets behind it.

Behind the continuous surge of the stock price.

In fact, a similar 'roller coaster' trend as described earlier occurred shortly after kingfarproperty was listed.

On July 3 of this year, kingfarproperty officially debuted on the Hong Kong stock market. On the day of its listing, kingfarproperty briefly fell below the issue price of 7.5 HKD, and on July 5, it hit a new low of 5.1 HKD during trading. However, after this, kingfarproperty started to rise, and in the following two months, the stock surged sharply, ultimately reaching 30.9 HKD on September 10, which was 3.12 times higher than the issue price and more than 5 times higher than its previous low.

Generally speaking, in the Hong Kong stock market, such strange trends may be related to characteristics such as relatively small market cap, limited overall liquidity, and a high concentration of shares.

According to publicly disclosed information, prior to kingfarproperty's listing, its shareholder structure included that kingfar holdings owned 88.5% of kingfar group shares, among which the Xi'an Economic and Technological Development Zone Management Committee held 7.5% through kingfar holdings and 67.5% through kingfar group, meaning there is concentrated control from major shareholders behind kingfar group, and this portion of equity is relatively concentrated among a few entities.

Additionally, during the IPO, kingfarproperty globally offered a total of 16.6668 million H shares, accounting for 25% of all shares after the offering was completed. Currently, kingfarproperty's total market cap stands at 2.52 billion HKD, and its circulating market cap is only 0.63 billion HKD, so it is clear that the company's market cap is relatively small and has limited overall liquidity.

However, it should be noted that most stocks with rapid rises and falls in the Hong Kong market tend to have small circulating market caps.

According to Zhitong Finance APP, in the process of seeking listing, kingfarproperty introduced three cornerstone investors, namely Xi'an Tianbo Diagnostic Technology Co., Ltd. (hereinafter referred to as 'Tianbo Diagnostic'), Xi'an Dingzhun Education Technology Co., Ltd. (hereinafter referred to as 'Dingzhun Education'), and THE REYNOLD LEMKINS GROUP (ASIA) LIMITED (hereinafter referred to as 'Ruikai Group'), with a combined shareholding of 10.76%.

Among them, Tianbo Diagnostic subscribed for 4.3911 million shares of kingfarproperty, Dingzhun Education subscribed for 1.4637 million shares, and Ruikai Group subscribed for 1.32 million shares. It should be noted that although they are all cornerstone investors, the lock-up periods for the shares held by the three institutions differ. Specifically, the two 'hometowns' of kingfarproperty have a lock-up period until July 2, 2025, while Ruikai Group will have its shares unlocked six months earlier, specifically on January 3 next year. If kingfarproperty's stock price remains high at that time, it will be worth watching whether the profit-rich Ruikai Group will be the first to exit.

In addition, based on the recent 20 days of the top ten net buying/selling brokers' ratio of kingfarproperty, as of November 18, Yaocai, Bank of China, and Futu Securities are the top three net buying brokers for the company, respectively buying 21.7847 million shares, 0.7848 million shares, and 25.65 shares. Among them, Futu Securities, as a concentration point for retail investors, has recently experienced a strong rally in its stock price, clearly attracting a large number of retail investors to rush in.

(Data source: Futu)

So, for this batch of retail investors who rushed in due to the continuous rise in kingfarproperty's stock price, is this an opportunity for price increase or a tempting trap? We will wait for time to reveal.

Behind the steady growth of performance

Looking through the operational history, kingfarproperty, established in 2000, is a state-owned property company in Shaanxi Province, with its business extending throughout Northwest China.

According to data from the China Index Academy, based on the managed building area in Shaanxi Province as of the end of last year, kingfarproperty ranks third among property management service providers operating in Shaanxi Province, with a market share of about 1.8%. As of the end of 2023, kingfarproperty provides public property management services, basic residential property management services, and basic commercial property management services for 149 projects in China, totaling an managed building area of approximately 14.607 million square meters.

In recent years, the real estate industry has entered a downward cycle, and the arrival of a 'market bottom' is an undeniable fact, while property companies generally 'increase revenue but not profit', with a significant weakening of profitability also evident.

Kingfarproperty is no exception. Although the company's revenue has maintained growth in recent years, kingfarproperty's profitability continues to weaken.

Specifically, from 2021 to 2023, the company's revenue increased from 0.594 billion yuan (RMB, same unit below) to 0.862 billion yuan, while net income rose from 31.155 million yuan to 51.018 million yuan. Despite the company's net income stepping up with the increase in revenue scale, it seems the company has not further improved in terms of profitability. Data shows that during the same period, kingfarproperty's gross margin was 14.5%, 14.3%, and 13.7% respectively, declining year by year.

In the first half of this year, thanks to actively expanding the business and improving management levels, kingfarproperty continued to achieve stable growth in performance. During the period, the company achieved a revenue of 0.463 billion yuan, representing a year-on-year growth of 18.57%; net income of 3.003 million yuan, up by 22.95%, and a gross profit of 69.65 million yuan, an increase of 25% year-on-year.

Similar to the contrast mentioned above, despite the steady growth in performance, there are still many development concerns surrounding kingfarproperty's growth.

On one hand, kingfarproperty's majority of business is concentrated in the headquarters in Xi'an, with fewer cities being explored, leading to certain limitations in operational activities. Once the market environment in this region changes, such as economic downturns, sluggish real estate markets, or increased competition, the company's business development will be significantly affected.

On the other hand, kingfarproperty still has a significant "large client concentration." From 2021 to 2023, the revenue generated by providing services to the Xi'an Economic Development Zone Management Committee accounted for 33.9%, 31.9%, and 27.1% respectively; during the same period, the revenue from services provided to the kingfar Holdings Group also reached 7.6%, 7.4%, and 6.2%. Interestingly, kingfar Holdings is the controlling shareholder of kingfarproperty, while the Xi'an Economic Development Zone Management Committee is the actual controller behind it. Thus, it can be seen that kingfarproperty's business currently still heavily relies on the related party, the Xi'an Economic Development Zone Management Committee, which poses a substantial test for the company's long-term growth potential.

In summary, it is not difficult to see that although kingfarproperty's revenue and net income show a trend of steady growth, the long-term growth potential of the company remains highly uncertain due to regional business concentration and dependence on major clients. In other words, under performance uncertainty, kingfarproperty's stock price is evidently difficult to maintain a sustained upward trend, prompting investors to exercise caution.