Chinese stock's 13,000% surge creates another US IPO mystery

Addentax Group soared as much as 13,031 per cent in its debut session on Aug 31. PHOTO: REUTERS

SINGAPORE - Another Chinese firm is baffling investors with massive gains on its first day of trading in the United States, following on from stellar debuts for AMTD Digital and Magic Empire Global.

Addentax Group soared as much as 13,031 per cent on Wednesday in its debut session, triggering more than 20 volatility halts. Its market capitalisation has ballooned to US$20 billion (S$28 billion), making it bigger than about a third of S&P 500 Index members.

Addentax, which lists garment manufacturing and logistics services among its key businesses, is at least the eighth firm this year from Hong Kong or China to experience similarly surprising moves following initial public offerings in the US. The Nevada-based holding company did not immediately respond to an e-mail seeking comment, and calls to numbers listed on its website went unanswered.

AMTD Digital and Magic Empire, both of which are financial services companies based in Hong Kong, made headlines earlier this quarter as shares mysteriously soared by thousands of per cent despite opaque fundamentals, before the rallies fizzled out. AMTD Digital at one point became bigger than Goldman Sachs.

IG Markets analyst Hebe Chen said the commonality between them includes the fact that they all come from traditional industries and have not-so-stellar financials.

Listed originally in 2015, when it identified itself as a shell company, Addentax in December 2016 acquired a key stake in its current major operating entity, Yingxi Industrial Chain Group. The company was trading on an over-the-counter market for US stocks called OTCQB Marketplace prior to its listing on the Nasdaq this week.

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

Like Magic Empire and AMTD Digital, Addentax has modest revenues that allow for relaxed disclosure requirements under US laws. For the year ended March, revenue dropped 49 per cent to US$12.7 million but it turned a profit, according to the prospectus.

Ms Chen from IG Markets said it is "more than likely" that Addentax will follow the pathway of AMTD Digital and Magic Empire soon. The latter two have lost more than 90 per cent from their respective peaks. BLOOMBERG

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