Article Source: “Science and Technology Board Daily”

Journalist: Ao Jin

On the last working day before the long holiday, three companies successfully landed on the Hong Kong stock market.

Undoubtedly, the most attention was on the fourth paradigm, which many capital bets were placed on. At the opening, the stock price of the fourth paradigm rose by 13.49% to HK$63.1 per share. As of the close of today, its stock price was HK$58.5 per share, with an intraday increase of 5.22%, and a total market value of HK$27.144 billion.

Before the IPO, the fourth paradigm conducted 9 rounds of financing in the primary market, gathering a group of top institutions including Sequoia China, Tencent Investment, Boyu Capital, CPE Source Peak, CICC, and Kinzon Capital. Prior to listing, the fourth paradigm's valuation had already exceeded 20 billion yuan in the final round of financing. Before successfully landing on the Hong Kong stock market this time, the fourth paradigm had made three attempts to list in Hong Kong, and the entire IPO process lasted for 2 years.

Also listed on the same day on the Hong Kong stock market were the network game product distributor Zhongxu Future and the digital medical service platform Dongsoft Xikang. It is worth mentioning that Dongsoft Xikang also experienced a tortuous listing process in Hong Kong after three failed attempts.

Behind the successful listing of the three companies on the same day is the gradual warming of the Hong Kong stock market. After experiencing zero IPO projects in August, as of September, the main board of the Hong Kong Stock Exchange has had 7 companies successfully listed and traded. According to Deloitte's forecast, in the full year of 2023, Hong Kong stocks will record nearly 100 new stock financing totaling approximately HK$180 billion.

Luxurious Shareholders Welcome the Hope of Exit

Many capital providers who bet on the fourth paradigm finally looked forward to the day when the company went public. Many institutional investors reposted this news on their social media accounts to express their joy.

Established in 2014, the fourth paradigm mainly provides platform-centered artificial intelligence software, enabling enterprises to develop their own decision-making artificial intelligence applications. Its prospectus shows that from 2020 to 2022, it achieved revenues of 942 million yuan, 2.018 billion yuan, and 3.083 billion yuan, showing significant growth in its business. However, at the same time, it is still in a loss-making state, with losses reaching 750 million yuan, 1.802 billion yuan, and 1.653 billion yuan during the same period.

In this IPO, the fourth paradigm was priced at the lower limit of the issue price range at HK$55.60 per share, issuing 18.396 million shares with an issue market value of HK$25.8 billion. Its net proceeds amounted to HK$835.5 million, with cornerstone investors subscribing for 13.6396 million shares, with a total subscription amount of HK$757 million.

The fourth paradigm was favored by many top institutions in the primary market. Before the IPO, it completed a total of 9 rounds of financing, and in addition to Sequoia China, Innovation Works, Chunhua Capital, Hupu Capital, cornerstone capital, and Songhe Capital, well-known financial investment institutions such as ICBC, ABC, and Bank of Communications also made investments through their investment platforms, raising a total of over 1 billion US dollars in the primary market.

The application materials show that before the offering, Sequoia China was the largest external institutional shareholder of the fourth paradigm, with a shareholding ratio of 11.49%. Boyu Capital and China New Emerging Industry Fund followed, with shareholding ratios of 3.17% and 2.72%, respectively.

Sequoia China had previously made multiple rounds of additional investments in the fourth paradigm through its multiple funds. According to data from Zero2IPO, after investing over 30 million yuan in the angel round, Sequoia China made investments in 2016, 2017, and 2021, with the cumulative investment amount in the fourth paradigm exceeding 500 million yuan.

With the fourth paradigm's Hong Kong IPO today, various institutions have also welcomed the hope of realizing investment returns. According to data from Zero2IPO, based on the issue price, Sequoia China's earliest investment has achieved a return of over 40 times; Boyu Capital and China New Emerging Industry Fund have both achieved a return of over 1 time.

However, investment professionals who are concerned about the fourth paradigm told the journalist of "Science and Technology Board Daily" that although the fourth paradigm has landed on the Hong Kong stock market, there may still be problems such as a decline in stock price and lack of buyers when institutions actually exit. "The valuation of the fourth paradigm exceeded 20 billion yuan in the final round, and judging from the market value on the first day of listing, it is also difficult to predict its stock price trend in the future. Moreover, the current liquidity of Hong Kong stocks is insufficient, and institutions may not necessarily find buyers when they want to sell off."

7 Projects Listed in September, Gradual Warming of the Hong Kong Stock Market

With the addition of the 3 projects listed today, as of September, the main board of the Hong Kong Stock Exchange has had 7 projects successfully listed and traded. Compared to the situation of no new IPOs in the entire August, it can be said that the Hong Kong stock market has shown initial signs of warming.

It can be seen that several projects that have experienced several attempts to list in Hong Kong, such as the fourth paradigm, Dongsoft Xikang, and Tuhu Car, have all recently been listed. In addition, the consumer investment institution Tiantu Investment, which recently passed the hearing, has also started its IPO and is expected to land on the Hong Kong stock market in early October.

According to data from the Hong Kong Stock Exchange, as of this year, a total of 37 new companies have been listed on the Hong Kong Stock Exchange, and there are currently 116 projects in the queue for listing.

KPMG maintains its forecast for the total IPO fundraising amount and the number of listings in Hong Kong for the whole year, which is HK$180 billion and 90 companies. KPMG believes that there are three major conditions that can drive the recovery of the Hong Kong new stock market, including a large number of listing applications, the prospect of listing for special technology companies, and the plans of large companies to spin off their businesses for listing.

Some market participants also expressed cautious optimism about the Hong Kong stock market.

In terms of stock price performance, among the three companies listed today, only the fourth paradigm did not break the issue price, while Zhongxu Future and Dongsoft Xikang both fell below the issue price at the opening. As of the close, Zhongxu Future was trading at HK$14 per share, the same as the issue price; Dongsoft Xikang was trading at HK$2.72, a decrease of over 42% from the issue price.

At the same time, although the number of new listings has increased compared to the previous period, the fundraising situation of the projects is not ideal. Although the fourth paradigm's current round of public offering ultimately achieved oversubscription, it has shrunk by 80% compared to the planned fundraising amount when it first attempted to go public two years ago.

In addition, in terms of the issuance ratio, Zhongxu Future, the fourth paradigm, and Dongsoft Xikang have issuance ratios of 3.55%, 3.96%, and 15.89%, respectively, still maintaining the trend of decreasing issuance ratios for Hong Kong stocks.

In its latest research report, Deloitte expects that in the first three quarters of this year, there will be 44 new listings in the Hong Kong new stock market, raising HK$24.7 billion, a decrease of 14% in the number of new listings and a 61% decrease in fundraising compared to the first three quarters of 2022, when there were 51 new listings raising HK$64 billion.

Regarding the changes in the current secondary market financing environment, some primary market investors have stated that they have adjusted their expectations for investment returns accordingly. "The current downward adjustment of investment market returns is comprehensive, and the expected returns on all investments are actually being lowered, so the primary market cannot be unaffected, so we have also adjusted our expectations."

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