Marketization from pricing to distribution: TONGSHIFU (00664) listed and was halved

If we only look at the oversubscription rate of 59.55 times in the public offering of TONGSHIFU (00664), the "POP MART for middle-aged people" narrative logic is undoubtedly successful. This has led many retail investors to hope that TONGSHIFU can replicate the strong performance of POP MART (00992) in the capital market. But reality is cruel. TONGSHIFU closed 30% lower during the grey market trading stage. On its official listing day on March 31st, its stock price opened significantly lower by 40%, and after a brief surge of less than ten minutes, it faced overwhelming selling pressure, continuously declined, and ultimately closed down by 49.17%. The next day (April 1st) after opening, the stock price once again fell to 26.28 HKD/ share, which is more than a 56% drop from the issue price of 60 HKD. The stock performance of TONGSHIFU can be called "surprising" in the market. Since 2026, the new stock market has been hot. Data shows that in the first quarter of 2026, a total of 40 new stocks were listed on the HKEx, but only 5 broke on the first day of listing, including TONGSHIFU, which means that only 1 out of every 8 new stocks broke. TONGSHIFU happened to be among them. In that quarter, only two new stocks experienced the largest price cut compared to the issue price, and TONGSHIFU was one of them. After such a brutal crash, a key question is now in front of the market: has TONGSHIFU's current stock price fallen below its value for allocation? And how should the market evaluate it? High IPO valuation under a new narrative The core reason for the sharp drop in TONGSHIFU's stock price after listing is that it was too expensive. According to the prospectus, from 2022 to 2024, TONGSHIFU's revenue was 503 million, 506 million, and 571 million RMB respectively, and the adjusted net profit during the same period was 56.938 million, 44.131 million, and 78.982 million RMB. There was a significant fluctuation in the profit, and overall it did not show strong growth. By 2025, TONGSHIFU's revenue was 617 million RMB, an 8.06% year-on-year increase, with a net profit of 47.838 million RMB. If the IPO expenses of 20.22 million RMB during the reporting period are added back, TONGSHIFU's true net profit in 2025 is 68.058 million RMB, a year-on-year decrease of 13.83%. This performance further confirms that the fluctuation in profitability and growth potential of the company do not match. However, such performance was given a surprisingly high valuation during the IPO. TONGSHIFU issued 7.4068 million H shares at a price of 60 HKD per share, accounting for 11.5% of the post-issue total share capital, resulting in a market value of approximately 3.864 billion HKD. Based on the true net profit of 68.058 million RMB in 2025 (approximately 77.52 million HKD), its issue price corresponds to a static price-earnings ratio (PE) close to 50 times. In the relatively illiquid HKEx market, a high valuation itself implies high expectations from the market for the company's fundamentals. The valuation of consumer stocks in the HKEx typically ranges from 10-20 times PE, and TONGSHIFU's IPO valuation has far exceeded this level with no strong support from its performance. This significant mismatch between fundamentals and valuation makes its high valuation difficult to be recognized by the market, which is the fundamental reason for its post-IPO price plunge and continuous pressure. So why did TONGSHIFU receive such an "absurd" valuation? The answer may lie in the seemingly simple narrative logic of "POP MART for middle-aged people". It successfully packaged TONGSHIFU with a new narrative that excites the capital market - equating a niche copper art brand with a proven, high-growth, premium-priced toy business model, thus briefly supporting a valuation that far exceeds its fundamentals during the IPO stage. However, a high valuation is difficult to withstand market scrutiny, and a 56% drop in two days is a clear response from the market to TONGSHIFU's blindly confident pricing. "The strange reverse recall" or a major factor in the crash In fact, during the prospectus stage, institutional investors' lukewarm attitude towards TONGSHIFU was already evident. Although the narrative logic of "POP MART for middle-aged people" successfully ignited the enthusiasm of retail investors, leading to an oversubscription rate of 59.55 times in the public offering, the international placement only received about 1.47 times oversubscription, at a relatively low level of institutional subscription interest among new stocks in that quarter. At the same time, TONGSHIFU only introduced one cornerstone investor (CICC International), with a subscription amount of only 30 million HKD, accounting for only about 6.33% of the issue size, indicating weak institutional willingness to underpin. This series of performances reflect the lack of recognition of TONGSHIFU's value by professional investors and a cautious attitude. It is precisely because of this that TONGSHIFU ultimately chose a pricing at the lower end of the price range - this is usually seen as a direct signal of cold subscription and cautious market sentiment. But what has sparked great controversy in the market is TONGSHIFU's forcible "reverse recall". In the traditional recall mechanism, if the demand in the public offering is extremely strong and the international placement subscription is equally active, a certain percentage of shares will be re-allocated to retail investors based on the oversubscription rate of the public offering. The purpose of this measure is to appropriately favor retail investors when both institutions and retail investors are looking for the shares, to reward the enthusiasm of retail investors, and increase their chances of winning in the lottery. In August 2025, the HKEX implemented new rules introducing Mechanism A (proportionate recall) and Mechanism B (fixed ratio, no automatic recall). TONGSHIFU chose the issuance method of "Mechanism B", with 10% public offering and 90% international placement. Although this mechanism does not include automatic recall, TONGSHIFU indicated in the prospectus a discretionary clause that allows for the redistribution of shares under certain conditions. However, with international subscription only at 1.47 times, and with little interest from institutions, TONGSHIFU exercised its discretion to redistribute 370,300 shares from the international placement to the public offering, increasing the public offering proportion from the initial 10% to 15%. This meant that retail investors were taking on more shares. In a situation where international investors are clearly unenthusiastic and subscription is lacking, the company forcibly allocates more shares to retail investors who show enthusiasm for subscription, widely interpreted by the market as "letting the retail investors take the hit," transferring the selling risk and price pressure after the listing to retail investors. This clearly contradicts the original intention of the "recall mechanism". In fact, TONGSHIFU could have adjusted the pricing or reduced the fundraising scale based on market conditions. After all, the prospectus included a discretionary clause even with the adoption of "Mechanism B", which to some extent reflected the company's lack of confidence. However, in a situation where international subscription was clearly cold, TONGSHIFU forced a "reverse recall", causing more retail investors who won the lottery to suffer. This mysterious pricing and allocation operation is also considered one of the important reasons for the sharp drop in the company's stock price after listing. After all, through more cautious and attractive pricing, coupled with the new narrative of "POP MART for middle-aged people," it could have ensured a more eye-catching performance post-listing, forming a positive cycle of "brand enhancement - transforming investors into customers - performance growth," thereby promoting the long-term healthy development of the company. However, the high pricing strategy and the strange "reverse callback" directly led to the company's listing with a dismal performance, not only damaging market confidence but also placing a heavy burden on the company's short-term brand building, with a widespread refutation of the narrative logic of "POP MART for middle-aged people" across the web. For TONGSHIFU, which has just entered the capital market, this is undoubtedly a "heavy blow". As of the closing on April 2nd, TONGSHIFU's total market value has fallen to 2.1 billion HKD, with a static price-earnings ratio (PE) of about 27 times based on the true net profit in 2025 (68.058 million RMB). Although this valuation has significantly dropped from the high point of nearly 50 times at the time of issuance, it still remains in a clearly overvalued range compared to the company's performance. In the current market environment in HKEx, which emphasizes cash flow and certainty, for a company with weak growth, earnings pressure, and a single business structure, this valuation level lacks sufficient safety margin and attractiveness. This means that even though the "greenshoe" mechanism has been activated to support the stock price after the crash and stabilize it, at the price of 26.28 HKD, the market may continue to wait and see.