Several "fairy stocks" have turned into 10x bull stocks! What is the reason?

Amid tightening IPO policies domestically, more and more companies are now seeking listings in Hong Kong.

However, at the same time, the phenomenon of companies becoming "penny stocks" after listing on the Hong Kong stock market is also not uncommon. As of the close of trading on September 3rd, nearly 1000 Hong Kong-listed companies had stock prices below 1 Hong Kong dollar, over 1400 companies had daily trading volumes below 5 million Hong Kong dollars, and over 1100 companies had daily trading volumes below 1 million Hong Kong dollars.

Securities Times · e company reporters have noticed that many "super bulls" have emerged among the "penny stocks" in the market. Since 2020, including YADEA, Jinjing New Energy, and Huiju Technology, a total of 18 Hong Kong-listed companies have seen their stock prices increase by more than 10 times. Among them, 14 companies with the lowest price below 1 Hong Kong dollar have achieved a 10-fold turnaround.

"Penny Stocks" Turnaround into 10x Bull Stocks

On May 19, 2016, YADEA was successfully listed on the Hong Kong Stock Exchange, becoming the first listed company in the Chinese electric vehicle industry.

However, what surprised everyone was that YADEA was "slapped in the face" by reality after listing: the stock price simply did not go up. In fact, on the day before the listing, due to insufficient subscriptions, YADEA's offer price was set at the lower limit of 1.72 Hong Kong dollars per share. On the first day of trading, YADEA's stock price fell to 1.32 Hong Kong dollars per share, a decrease of 23.3% on the same day.

Over the next 3 years, YADEA's business performance continued to excel, but its stock price and trading volume remained low. In November 2018, YADEA's daily trading volume was only a few hundred thousand Hong Kong dollars. That year, YADEA sold nearly 5.04 million electric two-wheelers, setting a new historical high; revenue increased by approximately 26.3% year-on-year to 9.917 billion yuan. This also marked YADEA's fifth consecutive year of revenue growth.

Due to the poor liquidity of small-cap stocks, institutional investors, as the main participants in the Hong Kong stock market, paid little attention to related companies, and YADEA was no exception. In the third year after listing, the stock price dropped to as low as 0.88 Hong Kong dollars per share, and the market value once fell below 3 billion Hong Kong dollars. Faced with the cold reception in the secondary market after listing, insiders at YADEA conducted a review, "The reason the stock price didn't go up was because as the first listed company in the industry, YADEA couldn't be valued." At that time, some investment professionals even mentioned that YADEA should refer to the valuations of Super Energy and Tian Energy— at that time, the valuations of these two companies were only 3 to 5 times, "so calculated, YADEA's market value was only tens of billions."

In the face of this situation, YADEA's Chairman Dong Jinggui began leading core team members to visit investors in Hong Kong one by one, "explaining to each person what we want to do in the future." As the core team of YADEA took the initiative to "go out," more and more investors actively visited YADEA for research, "That summer, we started interacting with investors." YADEA Holdings director and CFO Shi Rui told Securities Times · e Company reporters that many investors have put forward constructive suggestions for the company's development.

It was in 2019 that the new national standard for electric two-wheeled vehicles was implemented, marking the official start of the wave of replacing electric two-wheeled vehicles. In that year, the stock of electric two-wheeled vehicles in China exceeded 300 million, with over 250 million vehicles exceeding the standard. According to different city policies, these vehicles exceeding the standard will be gradually phased out of the market within 3 to 5 years. After the implementation of the new national standard, the electric two-wheeled vehicle market underwent a reshuffle, with many small manufacturers unable to continue, while YADEA Holdings, as the industry leader, fully enjoyed the "dividend".

In 2020, private equity institutions began to buy into YADEA Holdings, followed by public offerings, and then overseas funds also came in admiration.

Since its listing, YADEA Holdings' operating performance has been steadily climbing. In its first year of listing, YADEA achieved operating income of 6.668 billion yuan, with a net profit of 430 million yuan that year; in 2019, the company's operating income exceeded the 10 billion yuan mark, reaching 11.973 billion yuan, with a net profit of 516 million yuan that year. In 2021, the company's net profit exceeded 1 billion yuan for the first time, reaching 1.369 billion yuan.

With the right timing, favorable conditions, and human effort, YADEA Holdings, this "miracle stock," ushered in a moment of resurgence. From March 2020 to January 2021, the company's market value soared from 5 billion yuan to over 50 billion yuan, becoming a "ten-bagger".

These "miracle stocks" also achieve super comebacks

In addition to YADEA Holdings, there are several other "miracle stocks" that have also made comebacks. Securities Times · e Company reporters found that since 2020, there have been a total of 18 Hong Kong-listed companies whose stock prices have increased by more than 10 times. Among them, 14 Hong Kong-listed companies with the lowest price interval below 1 Hong Kong dollar have achieved a tenfold comeback.

Jinjing New Energy, which has expanded into the battery recycling field, has seen its stock price increase by over 14 times in the past year.

Originally named "Golden Run Holdings Limited," Jinjing New Energy was mainly engaged in the construction business when it went public in 2018. Since then, in 2022, it obtained the first set of licenses in Hong Kong for the disposal, transportation, and export of power batteries, and by acquiring a local leading renewable resource company, it has mastered the core resources and technology for power battery disposal and recycling, creating a complete ecological cycle.

On July 12, 2023, Jinjing New Energy's stock price was only 0.28 Hong Kong dollars per share, and the trading volume of the company's stock remained low, even reaching "zero trading." In August 2023, after the European "New Battery Act" came into effect, Chinese battery companies exporting to Europe must meet the EU's requirements for battery material recycling and reuse, and the law also requires a certain proportion of power batteries to use recycled materials. With a series of new policies driving it, Jinjing New Energy has transitioned from a "miracle stock" to a "bull stock" On February 19th this year, Jinjing New Energy announced a cooperation with the wholly-owned subsidiary of Guoxuan High-Tech, Hefei Guoxuan, to jointly layout the overseas power battery market and plan to build a global service system for battery core recycling and reuse.

On August 13th this year, MSCI announced the index review results for August, and Jinjing New Energy was included in the global small-cap index. This demonstrates the market's recognition of the company's performance and value, with expectations to enhance the company's reputation and increase stock liquidity.

On August 27th this year, Jinjing New Energy's stock price reached a new high, closing at HKD 5.86 per share. In just one year, the company's stock price has increased by 1483%. Over the past 4 years, the stock price has surged by 3173.74%.

As a supplier of customized wire interconnection solutions, Gather Technology is a typical representative of a "Cinderella stock" turnaround.

In its first year of listing in 2018, Gather Technology achieved operating income of HKD 1.238 billion and a net profit attributable to shareholders of HKD 132 million. In the following years, the company's operating income has increased year by year, but the stock price has remained low for a long time. On April 1, 2020, Gather Technology's lowest stock price dropped to 0.25 HKD per share. On October 20, 2021, the company's stock closing price was 0.425 HKD per share, with a daily turnover of only HKD 516,400.

Gather Technology's stock price surge is mainly attributed to its acquisition by Luxshare Precision.

On the evening of March 16, 2022, Luxshare Precision acquired a total of 1.38 billion shares of Gather Technology (accounting for approximately 74.67%) at a price of 0.80 HKD per share through its overseas wholly-owned subsidiary, with a total consideration of HKD 1.104 billion, becoming the controlling shareholder of Gather Technology. At that time, Luxshare Precision stated that Gather Technology has over 20 years of industry experience and strong complementarity with Luxshare Precision in terms of niche products and customer services.

In its 2022 annual report, Gather Technology stated that the strategic cooperation between Luxshare Precision and the company can enable the company to benefit further from the development and synergies in the consumer electronics, communications, healthcare, and automotive industries through the integration of customer and market resources, as well as Luxshare Precision Group's technological and R&D capabilities in products, customers, and market marketing.

In 2022 and 2023, the company achieved operating income of 3.59 billion yuan and 5.765 billion yuan respectively; net profit attributable to shareholders was 168 million yuan and 215 million yuan. Especially in 2023, the operating income increased by 60.6% year-on-year. Gather Technology mentioned in its 2023 annual report that the company remains confident in its 5G-related and data center businesses, and has planned to establish a new factory in Mexico to increase market share outside of China and Asia

Backed by Luxshare Precision, benefiting from its layout in 5G-related, data center, and automotive industries, Huizhu Technology's stock price has soared. Since 2022, Huizhu Technology's stock price has accumulated a 423.6% increase. If we start from 2020, the company's stock price has increased by more than 10 times. 

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## How to get rid of the "immortal stock"?

After going public, becoming an "immortal stock" has become an embarrassing situation for many Hong Kong-listed companies.

As of the close on September 3, nearly 1000 Hong Kong-listed companies had stock prices below 1 Hong Kong dollar, with over 1400 companies having daily trading volumes below 5 million Hong Kong dollars, and over 1100 companies having daily trading volumes below 1 million Hong Kong dollars.

In stark contrast, since 2020, 18 Hong Kong-listed companies, including Yadea Holdings, have seen their stock prices increase by more than 10 times. Among them, 14 Hong Kong-listed companies that eventually achieved a 10-fold comeback from being "immortal stocks."

In terms of time, among these 14 companies, 4 have been listed for over 20 years, with Shengshi Container being listed since 1993, totaling 31 years. 8 companies have been listed for over 10 years. Among the 5 companies listed in 2018, including Jinjing New Energy and Huizhu Technology, the shortest time since listing is 6 years.

In terms of industries, these 13 companies cover various sectors such as electrical equipment, specialty retail, communication equipment, healthcare services, pharmaceuticals, and machinery manufacturing, involving hot concepts such as power battery recycling, data centers, and Tesla. In terms of operating performance, most companies have shown an overall upward trend in revenue.

"The Hong Kong stock market is a very fair market," said a Yadea representative to reporters, emphasizing the importance of performance after listing.

Firstly, after listing in Hong Kong, performance is key. Companies should strive for sustained performance delivery and avoid relying solely on the initial hype of listing. "If a company lacks momentum and its performance starts to decline after listing, it will be very passive in the Hong Kong stock market. Therefore, theoretically, you should go public in an upward trend, ensuring stable annual performance growth."

Secondly, it is important to find strategic partners with high-quality resources, become cornerstone investors, and participate in the IPO. This will reduce the difficulty in the financing process and contribute to the stability of the shareholder structure.

Thirdly, although Hong Kong stock valuations may not be particularly high, companies should not be discouraged. Safety in listing is the primary goal, and high valuation should not be a top priority for now. In the Hong Kong stock market, valuations often need to be validated by the market over a period of time to provide a reasonable valuation. "Just like us, when we went public, people thought an 8-9 times valuation was high, but at the peak, they gave us a valuation of over 20 times."

"After going public, these few years have been the fastest growing period for YADEA. The most crucial point is to focus on the business as the main line," YADEA insiders believe that the core reason for the company's valuation and market value increase is the annual revenue increasing from tens of billions to over 30 billion RMB now. "If there is potential, there will be broad space after going public. There will be peaks and valleys, and the stock price cannot always rise. The only thing we can do is to run the company well and perform well." The driving force for sustained growth in performance in the medium to long term relies on continuously enhancing the core competitiveness of leading companies through research and innovation. In addition, the comprehensive improvement from the general level of corporate governance of listed companies to ESG is also highly valued by institutional investors.

Author: Zang Xiaosong, Source: Securities Times, Original Title: "Amazing! Many 'Xian Stocks' have become 10 times bull stocks! What's the reason?"