13,000% rise in Chinese stocks creates another mystery in US IPOs

(Bloomberg) — Another Chinese firm baffled investors with huge gains on its first day of U.S. trading, following stellar debuts by 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 debut session, triggering more than 20 stops in volatility. Its market capitalization has grown 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 firm this year from Hong Kong or China to experience such surprise moves following US 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 financial services companies based in Hong Kong, made headlines earlier this quarter as the shares mysteriously jumped thousands of percent despite opaque fundamentals before rallies petered 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 duplicating the history of HKD and MEGL, which also experienced an unprecedented share price frenzy recently,” said Hebe Chen, an analyst at IG Markets Ltd.

She said commonalities between them include the fact that they all come from traditional industries and have less-than-stellar finances.

The rally means the holdings of chairman and chief executive Hong Jida and his brother Hong Jiuang, who is a director, total about $1.3 billion. CEO Hong owns 4.8 percent of Addentax common stock, while his brother has 1.6 percent, according to the prospectus.

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

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

Modest income

Like Magic Empire and AMTD Digital, Addentax has modest revenues that allow for relaxed disclosure requirements under US law. For the year ended March, revenue fell 49% to $12.7 million, but it is profitable, according to the prospectus.

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

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