13,000% rise in Chinese stock creates another US IPO mystery

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(Bloomberg) — Another Chinese company is confounding investors with huge gains on its first day of U.S. trading, following stellar debuts from AMTD Digital Inc. and Magic Empire Global Ltd.

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Addentax Group Corp. jumped as much as 13,031% on Wednesday in its first session, triggering more than 20 volatility stops. Its market capitalization has soared to $20 billion, making it larger than about a third of the members of the S&P 500 Index.

Addentax, which lists apparel manufacturing and logistics services among its core businesses, is at least the eighth company this year from Hong Kong or China to experience similarly surprising moves after U.S. initial public offerings. The Nevada-based holding company did not immediately respond to an email seeking comment, and calls to numbers listed on its website went unanswered.

AMTD Digital and Magic Empire, both Hong Kong-based financial services firms, made headlines earlier this quarter as shares mysteriously jumped thousands of percent despite opaque fundamentals, before the rallies fizzled out. AMTD Digital Inc. at one point it became larger than Goldman Sachs Group Inc.

“The driving force behind Addentax Group’s price seems to be deliberately copying the history of HKD and MEGL, which also experienced an unprecedented frenzy in share prices,” said Hebe Chen, an analyst at IG Markets Ltd.

He said commonalities between them include the fact that they all come from traditional industries and have not-so-stellar financial credentials.

The rally means the stake of Chairman and CEO Hong Zhida and his brother Hong Zhiwang — who is a director — totals about $1.3 billion. CEO Hong owns 4.8% of Addentax’s common stock, while his brother owns 1.6%, according to the prospectus.

Originally listed in 2015 when it identified itself as a shell company, Addentax in December 2016 acquired a major stake in its current main operating entity called Yingxi Industrial Chain Group Co. The company traded on an over-the-counter market for U.S. stocks called the OTCQB Marketplace before listing on the Nasdaq this week.

According to its prospectus, Addentax used the same underwriter — Network 1 Financial Securities Inc. — as Magic Empire.

Moderate income

Like Magic Empire and AMTD Digital, Addentax has modest revenues that allow for relaxed disclosure requirements under US law. For the year ended in March, revenue fell 49% to $12.7 million, even though the company made a profit, according to the prospectus.

That compares with an average income of about $40 billion for S&P 500 members with a market value of more than $20 billion, according to data compiled by Bloomberg.

IG Markets’ Chen says it’s “more than likely” that Addentax will soon follow the path of AMTD and Magic Empire. The two have lost more than 90% since their respective peaks.

(Adds second chart and average earnings for S&P 500 members in penultimate paragraph.)

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