104 times oversubscription! Why is Zhongxu Future, the company behind "Greedy Blue Moon Scum Hui", so popular?

It's happening tomorrow! "Tangwan Blue Moon" and the game company behind "Sha Sha Hui", Zhongxu Future, are about to be listed on the Hong Kong Stock Exchange!

Currently, Zhongxu Future has announced the results of its IPO, with the company issuing approximately 18.976 million shares at a price of HK$14 per share, which is the upper limit of the IPO price range (HK$11 to HK$14).

It is worth noting that this stock has already become the "subscription king" of Hong Kong IPOs this year - the public offering in Hong Kong has been oversubscribed by 104 times; with each lot consisting of 200 shares, the chance of winning one lot is 50%, and subscribing for 7 lots (i.e., 1,400 shares) guarantees winning one lot.

In addition, the international offering has also received a slight oversubscription, with the final number of shares offered being approximately 9.488 million, equivalent to about 50% of the total number of shares offered.

So, what is this company all about? Why has it caused such a frenzy of subscriptions?

"I am Sha Sha Hui, come and play Tangwan Blue Moon with me"

For most investors who frequently surf the internet, the web game "Tangwan Blue Moon" endorsed by Hong Kong movie stars such as Zhang Jiahui, Louis Koo, and Donnie Yen, is a game that they may not have played, but have definitely heard the catchy advertising slogans spoken in Hong Kong Cantonese by these movie kings.

And Zhongxu Future is the operator of the well-known "Tangwan Games".

But what many people may not know is that according to Frost Sullivan data, in terms of revenue, Zhongxu Future is the fifth largest mobile game publishing company in China, accounting for 3.5% of the total market share in 2022.

The prospectus shows that for the fiscal years ending on December 31, 2020, 2021, and 2022, as well as the four months ending on April 30, 2023, the company recorded revenues of RMB 2.872 billion, RMB 5.736 billion, RMB 8.817 billion, RMB 2.847 billion, and RMB 2.448 billion, respectively.

Among them, the self-operated model is the main source of revenue, while the "cooperation model" is one of the reasons for the decline in Zhongxu Future's profits in recent years:

In 2020, the company recorded a loss of RMB 1.301 billion. In 2021 and 2022, the company generated profits of RMB 616 million and RMB 492 million, respectively.

The decrease in profits is mainly due to a decrease in gross profit margin, which is caused by an increase in the proportion of revenue generated by game products operated under the cooperation model, a decrease in the gross profit margin of game products operated under the cooperation model, and an increase in sales and distribution expenses for promoting newly launched games.

What should we pay attention to?

According to the analysis report, the total market value of Zhongxu Future after this issuance is estimated to be between HK$5.879 billion and HK$7.482 billion. However, the valuation reached RMB 10 billion after the financing in May 2021. This means that the current issuance of Zhongxu Future is discounted by 30%-45% compared to the previous valuation.In addition, looking at the 10 newly listed Hong Kong stocks recently, none of them experienced a first-day drop, with an average IPO PE (calculated based on the latest annual data) of 19.78 times. Zhongxu Future's IPO PE is 11.65 times, lower than the average level.

However, Zhongxu Future's joint sponsors are CICC and CITIC Securities, both of which have a good track record in the market performance of their sponsored projects.

Among them, CICC has seen all of its 6 recent projects rise on the first day of listing. CITIC Securities has a historical cumulative first-day drop rate of 29.03%, which is relatively low, and has had several projects with excellent performance on their first day of listing in the past year.