Four Paradigm and three other projects were launched on the Hong Kong stock market on the same day. Is the Hong Kong stock market initially recovering?

Source of the article: "Science and Technology Innovation Board Daily"

Reporter: Ao Jin

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

The one that attracts the most attention is undoubtedly the Fourth Paradigm where many capitals are betting. At the opening, Fourth Paradigm’s share price rose 13.49% to HK$63.1 per share. As of today's close, its stock price was at HK$58.5 per share, an intraday increase of 5.22%, with a total market value of HK$27.144 billion.

Before the IPO, 4Paradigm conducted 9 rounds of financing in the primary market, gathering leading institutions such as Sequoia China, Tencent Investment, Boyu Capital, CPE Yuanfeng, BOCOM International and Goldstone Investment. In the last round of financing before listing, Fourth Paradigm’s valuation exceeded 20 billion yuan. Before this successful listing on the Hong Kong stock market, 4Paradigm had launched three sprints into the Hong Kong stock market, and the entire IPO process lasted 2 years.

** Also listed on the Hong Kong stock market on the same day were online game product publisher Zhongxu Future and digital medical service platform Neusoft Xikang. It is worth mentioning that Neusoft Xikang also went through a tortuous listing process that failed three times in the Hong Kong stock market. **

Behind the successful listing of three companies on the same day is the gradual recovery of the Hong Kong stock market. After experiencing zero listing projects in August, a total of seven companies have been successfully listed on the main board of the Hong Kong Stock Exchange so far in September. According to Deloitte's forecast, in 2023, Hong Kong stocks will record nearly 100 new stocks raising approximately HK$180 billion.

Luxury shareholder group welcomes exit hope

Many investors who have bet on 4Paradigm are finally looking forward to the day when the company goes public. Many institutional investors forwarded the news on their WeChat Moments to express their joy.

Founded in 2014, Fourth Paradigm mainly provides platform-centric artificial intelligence software to enable enterprises to develop their own decision-making artificial intelligence applications. Its prospectus shows that from 2020 to 2022, it achieved revenue of 942 million yuan, 2.018 billion yuan, and 3.083 billion yuan respectively, and its business showed great growth; but at the same time, it was still in a state of loss, with losses reaching 750 million in the same period. yuan, 1.802 billion yuan, 1.653 billion yuan.

For this IPO, 4Paradigm priced the issue at HK$55.60 per share, the lower limit of the issuance guide price range, and issued 18.396 million shares with a market value of HK$25.8 billion. Its net fundraising amount was HK$835.5 million, of which cornerstone investors subscribed for 13.6396 million shares, with a total subscription of HK$757 million.

Fourth Paradigm is favored by many leading institutions in the primary market. Before the IPO, it had completed a total of 9 rounds of financing. In addition to well-known financial investment institutions such as Sequoia China, Sinovation Ventures, Primavera Capital, Hopu Capital, Cornerstone Capital and Songhe Capital, the five major investors include Industrial and Commercial Bank of China, Agricultural Bank of China and Bank of Communications. The bank's investment platform has also raised funds, raising a total of more than US$1 billion in the primary market.

Application materials show that before the issuance of **, Sequoia China was the largest external institutional shareholder of Fourth Paradigm, with a shareholding ratio of 11.49%. Boyu Capital and Guoxin Tus Fund followed, with shareholding ratios of 3.17% and 2.72% respectively. **

Sequoia China has previously made additional investments in 4Paradigm through multiple rounds of its funds. Cailianshe Venture Capital Pass-Zhizhong data shows that after investing more than 30 million yuan in the angel round, Sequoia China made additional investments in 2016, 2017 and 2021, and the cumulative investment amount in Fourth Paradigm exceeded 5 billion.

With the Hong Kong stock IPO of 4Paradigm today, various institutions have also welcomed the hope of exiting and realizing investment returns. According to data from Cailianshe Venture Capital Pass-Zhizhong, if calculated based on the issue price, Sequoia China's earliest investment has currently achieved a book return of more than 40 times; Boyu Capital and Guoxin Tus Fund have both achieved more than 1 times paper returns.

However, investors who are paying attention to 4Paradigm told a reporter from the Science and Technology Innovation Board Daily that although 4Paradigm has been listed on the Hong Kong stock market, problems such as stock price drops and no one to take over may also occur when subsequent institutions actually exit. "Four Paradigm's last round valuation exceeded 20 billion yuan. Judging from the market capitalization on the first day of listing, it is difficult to predict its stock price trend in the future. Moreover, the current liquidity of Hong Kong stocks is insufficient, and institutional shareholders may not necessarily want to sell out in the future. Someone can pick it up.”

Seven projects have been listed in September, and the Hong Kong stock market is gradually recovering

Together with the three projects listed today, as of September, seven projects have been successfully listed on the main board of the Hong Kong Stock Exchange. Compared with the fact that there were no new IPOs in August, the Hong Kong stock market can be said to have initially recovered.

It can be seen that many projects that have experienced several Hong Kong IPO sprints, such as 4Paradigm, Neusoft Xikang and Tuhu Automobile, have all been listed in the near future. In addition, Tiantu Investment, a consumer investment institution that recently passed the hearing again, has also launched an IPO and will be listed on the Hong Kong stock market in early October.

**According to data from the Hong Kong Stock Exchange, so far this year, there have been a total of 37 newly listed companies on the Hong Kong Stock Exchange, and a total of 116 projects are still waiting in line for listing. **

**KPMG maintains its full-year IPO fundraising and number of listing forecasts in Hong Kong unchanged at HK$180 billion and 90 companies. KPMG believes that the current three major conditions can drive the recovery of Hong Kong's new stock market, including the large number of listing applications, the prospect of specialized technology companies being listed, and the plans of large companies to spin off their businesses for listing. **

Some market participants are also cautiously optimistic about the Hong Kong stock market.

Judging from the stock price performance, among the three companies listed today, only 4Paradigm did not break the issue price, while Zhongxu Future and Neusoft Xikang both fell below the issue price at the opening. As of the close, Zhongxu Future reported HK$14 per share, the same as the issue price; Neusoft Xikang reported HK$2.72, down more than 42% from the issue price.

At the same time, although newly listed projects increased month-on-month, the fund-raising situation of the projects was not ideal. Although 4Paradigm ultimately achieved over-raising in this round of IPO, it has shrunk by 80% compared to the planned amount of funds raised when it first launched its IPO two years ago.

In addition, from the perspective of issuance ratio, Zhongxu Future, 4Paradigm, and Neusoft Xikang are 3.55%, 3.96%, and 15.89% respectively, still maintaining the trend of a smaller issuance ratio of Hong Kong stocks.

Deloitte predicts in its latest research report that in the first three quarters of this year, 44 new stocks will be listed on the Hong Kong new stock market, raising HK$24.7 billion. Compared with 51 new stocks raising HK$64 billion in the first three quarters of 2022, the number of new stocks has dropped by 14%. %, while the amount of financing fell by 61%.

Regarding the changes in the current financing environment in the secondary market, some investors in the primary market said that their expectations for investment income have been adjusted accordingly. "The current reduction in investment market yields is comprehensive, and the income expectations for all investments are actually being reduced." , the primary market cannot be unaffected, so we have also adjusted our expectations."