What is AMDD Digital in the world, and who is behind it?
That’s the question many investors are asking after an unknown Hong Kong company managed to join the ranks of global megacaps worth around half a trillion dollars on Tuesday.
It started when the American Depository Share (ADS) with the stock code HKD widened on the open, jumping 25% from the previous close price just at the start of trading before hitting an intraday high. at $2,555.
At its peak, its value more than tripled to a market capitalization of more than $450 billion, more than Facebook’s parent company Meta or Chinese online retail giant Alibaba.
And it did so on a daily volume of just 350,500 shares, according to Yahoo Finance data, its lowest since ADS trading began and well below the 1.2 million that had been traded in mean.
Even though it’s now lost a quarter of its value on Wednesday, it’s still worth around $240 billion, making it more valuable than Toyota, Nike, McDonald’s or Walt Disney.
Needless to say, this is an impressive performance for a company that sold 16 million shares at $7.80 each in mid-July, earning it a market capitalization of around $1 billion. of dollars.
What’s behind the rise?
There is apparently no justification for this kind of market capitalization.
The total income-earning assets on its balance sheet barely crossed the $400 million mark in March, according to filings by the SEC, a minnow in the world of high finance. Fortune sought to contact the company, but emails and calls were not answered immediately.
A glance at its website reveals little about its business model. Its brief one-minute corporate pitch video introduces the company as “Asia’s one-stop digital solutions platform and fusion reactor for the best entrepreneurs and ideas of the digital age” using a distinct approach star wars–like aesthetics.
A closer look at its prospectus filed with the SEC reveals what that means.
AMTD Digital essentially sells a sort of club membership to its “SpiderNet Ecosystems Solutions,” which claims to bring benefits by connecting businesses to each other. That accounts for the bulk of its $25 million in annual revenue generated in the fiscal year that ended in April 2021.
Rather unusually, his pre-tax profits for the past three years have consistently exceeded his revenue thanks to fair value accounting gains on his economic interests in companies like Appier, DayDayCook, WeDoctor and five Asian fintechs.
The company’s parent company is AMTD Group, a Hong Kong conglomerate that lists investment banking, hospitality services, high-end education, media and entertainment as its core competencies. It also has another subsidiary, AMTD IDEA, which is also listed on the New York Stock Exchange, although it is only worth $14 billion.
Why exactly US-listed AMTD Digital is unclear, as it immediately warned investors in its stock sale prospectus that it could eventually be forced to delist under SEC rules. .
Indeed, the bureaucracy put in place by Beijing currently prevents its Chinese auditor from being inspected by the American Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act.
This has been an ongoing source of frustration for investors in many Chinese stocks. If the United States and China fail to reach an agreement, about 261 Chinese companies listed in the United States and with a combined market value of $1.3 trillion are at risk of delisting.
Chairman and chief executive of parent group AMTD Calvin Choi has left his post as chief executive at UBS to take over.
His capitalist history and his distinction as a young world leader with the World Economic Forum do not prevent him from extolling the strengths of the Communist Party of mainland China, or from celebrating “the glory and the dream of the great rejuvenation of the Chinese nation”. a century after its founding.
Although he boasts of having an executive vice president with an anti-corruption track record and ties to Carrie Lam – Beijing’s former proconsul in Hong Kong – Choi himself, however, would be targeted by a ban on two years from the industry by the city’s securities regulator after investor China Minsheng Investment Group accused Choi of wrongdoing.
“Some projects [undertaken with funds from CMIG] actually made the money, but he didn’t give us the profits,” a senior company official told China’s Caixin in October 2020. “Some suffered losses, but we don’t know if he really invested or embezzled the money.”
A seismic anomaly
In the world of fundamental analysis, where companies are valued based on their future cash flows, AMTD Digital’s eye-popping market capitalization is the kind of seismic anomaly of the financial system that, statistically speaking, shouldn’t be happening. only once every hundred years.
Even AMTD Digital doesn’t seem to understand why it’s so valuable now. Using a letter of thanks to her new shareholders as an opportunity, she claimed she, too, was baffled by her stock’s performance.
“During the period since our IPO, the company has noted significant volatility in our ADS price and has also observed very active trading volume,” she wrote on Tuesday. “To our knowledge, there have been no material circumstances, events or other matters relating to the business and operational activities of our company since the date of the IPO.”
With that kind of leap, it’s no surprise that the permabears have come out of their slumber. Notorious short seller Jim Chanos asked if “we’re all going to ignore the 400 billion meme stocks in the room”, while Nate Anderson of Hindenburg Research called its majority owner AMTD Group “sleazy”.
Coincidentally, on the same day Securities and Exchange Commission Chairman Gary Gensler hailed the 20th anniversary of the Sarbanes-Oxley Act intended to restore confidence in U.S. financial markets in the wake of accounting fraud scandals that have defrauded Enron and WorldCom investors.
The surge has sparked painful memories of Robinhood’s fateful decision to remove the ability for retail investors to place buy orders on retail channel GameStop, seen as a decision to protect a handful of funds deep underwater speculation on the same stock.
“So why wasn’t the buy button removed for HKD?? Because retail wasn’t behind it?” a Twitter user replied to Gensler on Tuesday. true. You are useless.”
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