news

Looking down at Victoria Harbour from Victoria Peak in Hong Kong, you can clearly see the Exchange Square Building where the Hong Kong Stock Exchange's headquarters is located. Image source: Visual China

Author | Wen Shijun

Editor | Wang Weikai

Produced by | Prism·Tencent Xiaoman Studio

Halfway through 2024, Hong Kong stocks have gone through a round of ups and downs. The Hang Seng Index fell to 14,794.16 points on January 22, but soon entered an upward repair channel, rising to this year's high of 19,706.12 points on May 20, a 33% increase from the low.

The underlying logic of the market is that repeated transactions, which may be rational or impulsive, constitute prices, price fluctuations form emotions, and emotions in turn drive transactions again and again.

But, no matterBull MarketstillBear Market, there are always people who leave disappointed. But there are always opportunities in the market.

Looking at the Hong Kong stock market in 2024, from the beginning of the year to the close of July 22, there were 70 stocks that doubled by more than 100%. Even if small and medium-sized stocks with a market value of less than 10 billion are excluded, there are still six stocks with a market value of more than 10 billion that doubled in price. Three of them are "post-2020" new stocks and second-new stocks: Meizhong Jiahe, Shengneng Group, and Pop Mart.

Since 2024, there are six billion-dollar stocks with a growth rate of more than 100% in Hong Kong stocks, namely, Meizhong Jiahe, Hony Group, Sunpower Group, Brilliance China, TCL Electronics, and Pop Mart. Among them, Meizhong Jiahe has the highest growth rate, and Pop Mart has the largest market value among the stocks that have doubled. Image source: drawn by the author, data as of the close of July 22, extracted from Wind.

 Hong Kong stocks are hot in the market, but Sino-US Jiahe is an old player in the capital market

Meizhong Jiahe (2453.HK) is a new stock that was just listed on January 9, 2024. Although it experienced a drop in the IPO price, it has become the stock with the highest increase in market value among the tens of billions of market value stocks, with a market value increase of 294.4% since the beginning of the year, riding on the concept of medical health and the recent upsurge of "speculating on new stocks" in the Hong Kong stock market.

The core track of Meizhong Jiahe is the operation of private cancer hospitals. According to the 2023 annual report, the six offline self-operated cancer hospitals under its umbrella had a combined revenue of 320 million yuan, contributing 59.4% of the company's revenue. The remaining 40% of the revenue came from medical equipment, software and related services.

As Buffett said: "Someone is sitting under the shade of a tree today because he planted a tree long ago." China Merchants Capital is not a newcomer to the capital market.

Its parent company, Taihecheng Medical (CCM.N), was listed on the New York Stock Exchange in 2009, becoming China's first medical service company to be listed overseas. Yang Jianyu, the soul figure of Taihecheng and Meizhong Jiahe, has a financial background and worked for the Agricultural Bank of China and Xiangcai Securities in the 1990s and early 2000s.

In January 2016, Meizhong Jiahe alsoThree new boardIt was listed on the stock market (835660.NQ). It was only a little over a year since the first private cancer hospital under its umbrella, Datong Meizhong Jiahe Cancer Hospital Co., Ltd., was registered and established.

After the listing of the New Third Board, some financial investors also entered the market with funds, including Jinshi Haoli and Dongfang Securities under CITIC Securities. It was also during this period that Meizhong Jiahe began to open and acquire hospitals and clinics in Shanghai, Guangzhou and other places. The New Third Board gradually could not accommodate Meizhong Jiahe's ambitions.

On February 22, 2018, Meizhong Jiahe took the initiative to delist from the New Third Board. Meizhong Jiahe's prospectus shows that the delisting resolution was "unanimously approved by the company's shareholders" and that the Hong Kong listing "is in the overall interests of the group and shareholders."

In March 2018, after voluntarily delisting from the New Third Board, Meizhong Jiahe launched the A round of "pre-IPO investment". The pace was very tight. In February 2020 and April 2021, the B and C rounds of financing arrived as scheduled. Subsequently, in May 2022 and January 2023, Meizhong Jiahe submitted applications to the Hong Kong Stock Exchange twice but failed.

On February 12, 2023, before the implementation of the new overseas listing registration regulations, Meizhong Jiahe obtained the approval of the China Securities Regulatory Commission to issue foreign-invested shares for overseas listing (known as the "big road" in the industry, valid for one year).

In June 2023, Meizhong Jiahe received another RMB 300 million Series D financing from Shijiazhuang Pharmaceutical Group Enbi Pharmaceutical Co., Ltd. at the cost of 4.17% of the shares (calculated based on this valuation of approximately RMB 7.2 billion).

Three months after the D round of financing, in September 2023, Meizhong Jiahe applied to the Hong Kong Stock Exchange for the third time.IPOIn January 2024, Meizhong Jiahe was listed on the Hong Kong Stock Exchange through its IPO, becoming one of the last batch of companies to complete its Hong Kong stock listing within the validity period of the road permit.

Although pre-IPO financing was hot and the stock price soared after the IPO, Meizhong Jiahe, which is still in the expansion period, has not yet made a profit. Financial data shows that its net profit attributable to the parent company in 2023 is a loss of 406 million yuan.

Even though the losses have narrowed compared to 855 million and 635 million yuan in 2021 and 2022, its current share price still needs to solve the long-term development problems of debt and profitability, or at least have visible profitability to support it. At least for now, the rise in its share price is not supported by its performance fundamentals.

Meizhong Jiahe has gone through multiple rounds of financing, and there are many financial investors "lurking" among its shareholders, including big capital "players" such as CITIC, CICC, and Noah Gopher (whose founder also has a background in Xiangcai Securities).

According to the rules of the Hong Kong Stock Exchange, the lock-up period for pre-IPO investors is at least six months, and the lock-up period for controlling shareholders is six months to one year - this time node began to gradually expire on July 8, and their shares began to be unlocked. As of the close of July 22, the total market value of Meizhong Jiahe of HK$31.3 billion was HK$10.77 billion.

As the lock-up period of the shares held by a number of financial investors is gradually lifted, they hope to exit and make a profit. It is normal for them to sell at high prices and lock in profits. Even the controlling shareholders hope to sell their shares to realize cash, which is also a market behavior.

However, the "big test" of lifting the ban on new shares is likely to significantly disturb the stock price, especially when the stock is highly valued and the stock price is at a high level.

From this perspective, there is another issue worth noting. Its relatively limited circulating market value, daily trading volume andTurnover rateNot high. According to the transaction data on July 22, the transaction volume of Meizhong Jiahe, which has a market value of more than 30 billion yuan, was 6.597 million yuan, and the turnover rate was only 0.06%. This is likely to cause some common problems of small and medium-sized stocks - not much money can affect the stock price, and then leverage the market value, causing a certain degree of stock price "distortion".

Shengneng Group was hyped up as a "10-fold stock", and it will take 45 years for Pop Mart shareholders to make back their investment through the company's profits

Sun Energy Group (2459.HK), which has risen 130.69% year-to-date, is a new stock and will be IPOed in January 2023.

Although its rise is also part of the current wave of "new stock speculation" in Hong Kong stocks, the market of Shengneng Group was only launched in April this year. In the 2023 fiscal year, Shengneng Group's net profit attributable to shareholders after deducting non-recurring items was a loss of RMB 117 million, a year-on-year drop of 299.34%.

On April 9, the share price of Sunenergy Group once dropped to a low of HK$1.97, with a total market value of just over HK$2.1 billion. But by the close of July 22, the share price of Sunenergy Group had closed at HK$21.35, which is a veritable "ten-fold stock" compared to the low point on April 9.

Such a "roller coaster" market is by no means driven by fundamentals or emotions alone. On the one hand, the total market value of Shengneng Group has fallen to a low of HK$2.1 billion. Like other small and medium-sized stocks, the funds needed to leverage the stock price are not much.

On the other hand, the industry prosperity of ultra-high power graphite electrodes, the core business of Shengneng Group, and the news that it may be included in the Hang Seng Composite Index have made this new stock an excellent "stock speculation" target.

The strong rebound after the stock price hit the bottom is the best proof. Especially for a free market, any "distortion" and any information gap are synonymous with opportunities. But risks also follow.

Pop Mart (9992.HK), which went public on the Hong Kong Stock Exchange in December 2020, is also not a familiar face on the Hong Kong Stock Exchange. As of the close of July 22, Pop Mart's year-to-date increase has reached 100.29%.

Although Pop Mart has the smallest increase among the six billion-level stocks this year, its market value is the highest - more than HK$53.986 billion. On the same day, Vanke (2202.HK) had a market value of only HK$53.8 billion. Bilibili (9626.HK), which is also in the pan-two-dimensional track, has a market value of even less, less than HK$50.4 billion.

Based on the profit of HK$1.194 billion in fiscal year 2023 and the market value on July 22, Pop Mart's PE (price-to-earnings ratio) has exceeded 45 times. This means that if a buyer buys the entire Pop Mart company at this market value, and if the profit remains at the 2023 level, it will take the buyer 45 years to recover the investment through the company's profits.

45 times is a very high valuation multiple. Currently, the Hang Seng Index constituent stocks, which represent the core assets of Hong Kong stocks, have a price-to-earnings ratio of less than 9 times. Important technology stocks in Hong Kong stocks, such as Alibaba (9988.HK), have a PE ratio of only 17 times during the same period, NetEase (9999.HK) is 14 times, and Baidu (9888.HK) has shrunk to 11 times. BYD Co., Ltd. (1211.HK) and Xiaomi Group (1810.HK), which are quite active and have repeatedly made waves in the market, are only in the 21-22 times range.

At a market value of HK$50 billion, valuation needs to be supported by performance, and investors also use real money to buy this valuation. Moreover, as a representative of capital players in the mass trendy toy track, Pop Mart is indeed more concerned by the market.

Changes in Pop Mart's net profit attributable to shareholders after deducting non-recurring items from 2017 to 2023. Image source: drawn by the author, financial report data extracted from Wind.

The first store opened in 2010. In 2017, it was listed on the New Third Board (870578.NQ). At that time, Pop Mart's net profit attributable to shareholders after deducting non-recurring items was only more than 1.6 million yuan. By the time it voluntarily delisted from the New Third Board in 2019, Pop Mart's net profit attributable to shareholders after deducting non-recurring items had reached nearly 430 million yuan, a 269-fold increase in two years.

In December 2020, after Pop Mart moved to the Hong Kong Stock Exchange for listing, its market value soared. In February 2021, more than two months after its IPO, it reached a historical high of HK$105.2 per share, and its closing market value on that day reached HK$147.2 billion.

The young founder Wang Ning and his wife soon became worth tens of billions of yuan, and the listing of Pop Mart became a legendary story of wealth for young people, trendy toys, or the pan-two-dimensional track. It also made some people sigh: "Not understanding Pop Mart is a big failure of middle-aged people's investment."

What is the business model of trendy toys, or trendy toys in blind boxes? Two-dimensional scene consumption, IP innovation and realization, and even international expansion, this is the story that Pop Mart tells the capital market.

But there are also voices criticizing that blind boxes are actually "the Las Vegas of Generation Z." The Economic Observer also reported bluntly: "The reason why blind boxes are so addictive for young people is directly related to their scarcity and gambling nature." Under this logic, Hong Kong-listed Pop Mart has become Macau Galaxy Entertainment (0027.HK) in a box.

Of course, in the short term, the core support for Pop Mart's current round of market is still the fundamental performance factors. In 2022, Pop Mart's net profit attributable to shareholders after deducting non-recurring items fell sharply from RMB 820 million in the previous year to RMB 390 million, but its performance rebounded significantly in 2023, rising to RMB 1.01 billion.

Although the performance in 2024 is equally positive. On July 18, Pop Mart released a positive profit forecast, predicting that "revenue growth will be no less than 55%" in the first half of 2024, and net profit (profit) "may record an increase of no less than 90%" compared with the same period last year.

But even so, shareholders still dare not hold on to Pop Mart, which is valued at 45 times. From the perspective of southbound funds, from the beginning of 2024 to date, southbound funds (Shanghai-Shenzhen-Hong Kong Stock Connect) have been in a net outflow state for Pop Mart, with buying and selling offsetting each other, which is -28.07 million shares.

Because for the Hong Kong stock market, which is a more free market, if you want to get out of the market unscathed, you can’t just rely on your luck by “taking a gamble” like drawing a blind box.

(The analysis is based on public information of listed companies, and the data is as of the close of July 22, 2024. It is not intended as investment advice.)