Another little-known Hong Kong-based financial services firm is mystifying investors with a dramatic price surge following its US listing.
Magic Empire Global Ltd (魔力帝國環球), which provides underwriting and advisory services and has helped just one company go public since 2020, surged 2,325 percent in its debut session on Friday in New York to a market capitalization larger than soccer club Manchester United PLC.
Magic Empire is the seventh firm this year from Hong Kong or China to experience similarly surprising moves.
“This price level has clearly shown it is not sustainable,” said Ken Shih (石健), head of wealth management in Greater China at Saxo Capital Markets HK Ltd (盛寶金融), adding that without knowing who is doing the buying, it is hard to be definitive.
“At this point, downside risk for investors clearly outweighs upside,” he said.
Hong Kong financial services provider AMTD Digital Inc (尚乘數科) last week briefly became bigger than Goldman Sachs Group Inc, after a 14,000 percent gain in less than a month.
The moves are particularly notable at a time of otherwise muted IPO activity, and with Chinese companies Alibaba Group Holding Ltd (阿里巴巴) and JD.com Inc (京東) threatened with delisting if it fails to comply with US auditing standards.
Magic Empire reported revenue of US$2.2 million for last year, a 17 percent drop from a year earlier.
The company’s operating entity, Giraffe Capital Ltd (智富融資), completed just one IPO in 2020 and none last year “due to COVID-19 and volatile outlook of the Hong Kong capital market,” according to the prospectus.
Friday’s price surge brought Magic Empire’s market capitalization to US$1.9 billion.
Magic Empire chairman Gilbert Chan Wai-ho (陳偉豪) and CEO Johnson Chen Sze-hon (陳斯漢) co-lead Giraffe Capital, which obtained a license to provide corporate finance services in 2017. The firm mostly works on IPOs on GEM, the small-cap exchange, and often engages other small local brokerages as underwriters, including KOALA Securities Ltd (樹熊證券), HKMonkey.com and Yellow River Securities Ltd (黃河證券).
Chan and Chen own most of Magic Empire, with a combined stake of about 63 percent. The firm had just nine employees as of December last year, according to its prospectus.
About half of the companies Giraffe Capital has taken public jumped on the first day, some by as much as 125 percent. Seven are now trading 30 percent to 92 percent lower than IPO price, and another has been delisted.
In the first half of this year, fundraising in the Hong Kong IPO market dropped 92 percent. With the tiny companies that make up their customer base under close regulatory watch, small and medium-sized financial advisory firms such as Giraffe Capital have had a particularly tough time.
In 2017 and last year, the Securities and Futures Commission and the Hong Kong stock exchange issued two rounds of warnings about so-called ramp-and-dump schemes tied to small-cap IPOs. These schemes manipulate very thin trading volume to inflate prices, luring unwary investors before shares collapse.
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