Recently, the sharp rise and fall of the Hong Kong Stock Exchange's sub-IPO Yisou Technology (02550) attracted market attention.

Yisou Technology was transferred to the Hong Kong Stock Connect in September of this year. Against the backdrop of the sharp rise in Hong Kong stocks in October, it once soared to a high of HK$67.25 per share. Recently, Yisou Technology plummeted one after another, and fell below the low level of HK$7.62 per share on November 19. The cumulative decline was more than 80% in less than a month, which is simply not too exciting.

Yisou Technology's stock price has rebounded in the past two days. Today (November 21), its stock price surged 45.34% to HK$14.04 per share, with a total market value of around HK$4.6 billion.

Photo source: Gelonghui

According to Wind data, out of the more than 50 IPOs listed on the Hong Kong Stock Exchange this year, a total of 10 companies have entered the Hong Kong Stock Connect, namely Midea Group, Old Store Gold, Maifushi, Quzhi QUNABOX GROUP, AUTOSTREETS, QUANTUMPH-P, Chabaidao, the US and China Jiahe, Suteng Juchuang, and Yisou Technology. As of today's close, out of these 10 companies, the one with the lowest total market capitalization is Yisou Technology.

It is worth noting that the market value of Hong Kong Stock Connect shares must meet certain standards in order to remain on the Hong Kong Stock Connect list. According to the current system, Hong Kong Stock Connect stocks, which are components of the Hang Seng Composite Small Cap Index, need to have an average month-end market value of Hong Kong stocks in the 12 months before the adjustment review date not less than HK$4 billion (market value calculated based on actual market time for less than 12 months); otherwise, they may be transferred out of Hong Kong Stock Connect?

If transferred out of the Hong Kong Stock Connect, mainland capital will no longer be able to buy the company's shares through the Hong Kong Stock Connect channel, and its trading activity and liquidity will also be affected.

At the same time, Yisou Technology is also about to usher in a large-scale lifting of the ban, which is an important reason for market panic.

Yisou Technology was listed on the Hong Kong Stock Exchange on June 7, 2024. The ban on new shares in the Hong Kong stock market is usually 6 months. During the ban period, investors (including controlling shareholders and cornerstone investors) are unable to sell stocks before listing. This limits market supply and is conducive to maintaining relatively stable stock prices.

However, with the lifting of the ban on a large number of restricted stocks on December 7, it's hard to say what the stock price will look like. After all, today's closing price of around HK$14 is far higher than the offering price of HK$5.8.

According to the prospectus, after the Hong Kong stock issuance and listing, Wang Xi held 32.49% of the shares through Growth Value, and pre-initial public offering investors (SBCVC Fund III, BlueSky Holding, Estate Success, Ventech China II SICAR, Shenzhen Lihe Partnership, Shenzhen Lihe, Mr. Ding and Jinhe Capital Co., Ltd.) held about 23.82% of the shares.

Yisou Technology operates four business lines: digital reading platform services, digital marketing services, online game distribution services, and other digital content services. From 2021 to 2023, more than 90% of the company's revenue was generated from advertising services provided under digital reading platform services and digital marketing services.

To serve advertisers, companies need to spend a lot of money to buy user traffic. From 2021 to 2023, Yisou Technology's annual sales cost was more than 0.2 billion yuan, of which more than 80% of sales costs were Internet traffic costs.

Furthermore, the company's profitability is worrying. From 2021 to 2023, although Yisou Technology's revenue increased from 0.433 billion yuan to 0.559 billion yuan, net profit declined from 50.011 million yuan to 25.011 million yuan. There was no increase in revenue and profit. The net interest rate also fell from 11.5% to 4.5% during the same period.

In the first half of 2024, due to increased revenue from digital marketing services, online game distribution services and other digital content services, Yisou Technology's revenue increased 13.4% year-on-year to 0.278 billion yuan, and net profit also increased, but the net profit margin was only 1.2%.