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JL Mag makes underwhelming debut on Hong Kong stock market

Hong Kong stock market

JL Mag’s Shenzhen-listed shares also slipped, dropping 1.1% to US$5.95

A major Chinese manufacturer of rare earth magnets for electric vehicles, wind power generators and energy-efficient air conditioners made an underwhelming debut on the Hong Kong stock market on Friday despite being a key player in a red-hot sector.

JL Mag Rare-Earth produces magnets from an alloy of neodymium, iron and boron known as NdFeB. The Jiangxi Province-based company leads this market, holding a 14.5% global share as of 2020, according to U.S. research consultancy Frost & Sullivan.

Growing environmental concerns and the global policy push for low-carbon emissions have helped the company expand. Revenue for the first six months of 2021 totalled 1.76 billion yuan (US$0.28 billion), up 93% on year, while net profit increased 140% to 220.34 million yuan (US$34.69 million).

This year, revenue is projected to reach 5.84 billion yuan (US$0.92 billion) with net profit almost tripling to 683 million yuan (US$107.52 million), according to estimates from three Chinese brokers surveyed by QUICK-FactSet.

Despite these strong numbers, trading opened on Friday at HK$30.80 (US$3.96), 9% below the Hong Kong share sale price of HK$33.80 (US$4.34). The stock glided further down as a virtual opening-bell ceremony played on the Hong Kong Stock Exchange’s website, going as low as HK$28 (US$3.60). It was at HK$29.15 (US$3.74) late in the morning session.

JL Mag’s Shenzhen-listed shares also slipped, dropping 1.1% to 37.81 yuan (US$5.95) during the morning session.

There were indications that JL Mag would get off to a weak start in Hong Kong. The share sale was priced at the bottom of the marketed range, reflecting tepid demand. On premarket trading Thursday on a platform run by Phillip Securities Group, the shares dropped to HK$27.85 (US$3.58).

The share sale raised HK$4.24 billion (US$0.54 billion) for the company, though it could expand that by exercising an option to upsize the sale.

Most of the money will be used for a new factory in the eastern city of Ningbo expected to open by the end of 2023 as well as the purchase of machinery and equipment for use at the company’s existing production site in the city of Ganzhou.

Ahead of Friday’s debut, investors commenting online were pessimistic, noting that the Hong Kong offer price was relatively close to the Shenzhen price, after the latter slipped during the share sale process.

It’s not that we are not appreciating the company’s fundamentals, but it is the discount compared to its A-share which is not attractive, said one on a discussion forum operated by Snowball Finance.

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