China’s leading producer of optical transceivers and interconnect solutions, sank below its initial offering price on its first day of trading in Hong Kong after raising approximately HKD 53.4 billion (USD 6.8 billion) in the city’s largest listing in nearly seven years.
Shares ended the day 2% lower at HKD 960 (USD 122.38) each, compared to the HKD 980 offer price. Amid a selloff in Chinese mainland equities and a broader retreat from global technology stocks, its Shenzhen-listed stock closed down 9.2% at CNY 864 (USD 127.83), after falling as much as 16.6% to CNY 793.03, marking the lowest point since April 16.
The company’s robust rally earlier this year in Shenzhen is also a key reason for its decline in Hong Kong. Driven by soaring demand for its products and rapid earnings growth, it peaked at CNY 1,416.88 (USD 209.45) on June 22 but has since fallen by about one-third. Despite this, as of July 29 closing, the shares are still up roughly 56% year-to-date and approximately 353% over the past 12 months.
The company sold 54.5 million Hong Kong shares, with the offering price offering nearly a 3% discount to the upper marketed limit of HKD 1,010 and roughly a 21% discount compared to its July 27 closing price in Shenzhen.
This notable secondary listing, the largest in Hong Kong since Alibaba’s in November 2019, attracted many high-profile cornerstone investors, including Temasek, Abu Dhabi Investment Authority, CPP Investments, BlackRock, J.P. Morgan Asset Management, Wellington Management, Alibaba, and Tencent Holdings.
Following the significant price correction since late June, the company announced plans to buy back shares from its Shenzhen listing, with a target range of CNY 4 billion to CNY 8 billion (USD 591.2 million to USD 1.2 billion). Share buybacks are often used to support a stock’s price by reducing the number of shares available in the market.
“The initiation of the share repurchase scheme appears closely linked to the Hong Kong listing,” said an analyst from Everbright Securities International. “Innolight aims to halt the decline in Shenzhen’s share price to bolster confidence among Hong Kong investors and support the company’s post-listing performance there.”
Proceeds from the Hong Kong offering will mainly be allocated to research and development of optical interconnect solutions (35%), expanding its capacity to produce high-speed optical transceivers globally (30%), acquisitions and investments within its supply chain (15%), strengthening supply chain resilience (10%), with the remainder allocated to working capital, according to the company’s prospectus.
Driven by rising demand for artificial intelligence computing, the global optical module market is experiencing unprecedented growth. The market for optical modules in data centers is projected to reach USD 22.8 billion this year and grow to USD 41.4 billion by 2030, according to U.S.-based market research and data analysis firm LightCounting.