Highly concentrated equity ownership warns, SPROCOMM INTEL(01401) staged a "flash crash" drama?

On the 20th day of trading, a stock in the Hong Kong stock market experienced a sudden "flash crash" - as of the close on the 20th, SPROCOMM INTEL (01401) had fallen by 87.96%, reaching 1.5 Hong Kong dollars, down 90% from its high of 15.3 Hong Kong dollars at the beginning of the month. This "flash crash" shocked many investors. Specifically, shortly after the market opened today, the company's stock price quickly plummeted to around 1.2 Hong Kong dollars, with the highest intraday trading volume reaching around 1.2 million shares. Previously, the company's stock price had been hovering below 5 Hong Kong dollars for a long time, with trading volumes of less than 1 million, and low market attention. However, between October 4th and November 6th, the company's stock price rose continuously from 4.73 Hong Kong dollars to 15.3 Hong Kong dollars, a 223% increase, while the trading volume did not increase proportionally. There may have been hidden risks behind the sudden rise. On the news front, the recent Hong Kong Securities and Futures Commission has identified the company as having a highly concentrated ownership structure, with major shareholders reducing their holdings multiple times, which may have been the main factor triggering the stock price drop. Understanding that Sprocomm Intelligence Limited (Sprocomm Intel) is a smartphone ODM supplier focusing on emerging markets, with its main business involving research, development, design, manufacturing, and sales of smartphones and printed circuit board assemblies. According to data from 2017, the company had a market share of 2.6% among domestic ODM smartphone suppliers, ranking seventh. In terms of major shareholders and other individuals, in addition to two executives and their spouses, there are also Hao Xuanting and his spouse holding 6.5% through JZ Capital Limited, totaling 74% of the shares. According to the latest data from the Hong Kong Securities and Futures Commission, as of November 7, 2024, 26 shareholders collectively held around 517 million shares of the company, equivalent to 51.74% of the company's issued shares; 47.604 million shares of the company's shares (4.76% of the issued capital) were not held in CCASS; these shares, together with the approximately 345 million shares held by the company's two major shareholders, account for 91% of the company's issued shares. Therefore, only 90.022 million shares (9% of the issued shares) are held by other shareholders. Market analysis indicates that the disclosure of companies with highly concentrated ownership usually occurs when a few shareholders hold a large number of shares or when stock trading activity shows unusual signs, such as abnormal stock price fluctuations or a sharp increase in trading volume, to ensure market fairness and transparency and help investors avoid investment risks. Hong Kong Exchange regulations explicitly state that listed companies must maintain a sufficient public shareholding to ensure market liquidity and fairness. Generally, the public shareholding should not be less than 25%, and for listed companies with a market value exceeding one billion, the public shareholding ratio can be relaxed to 15%. Therefore, the disclosure of high ownership concentration often means that the company's ownership structure has touched regulatory red lines, and can often lead to a "flash crash" in the company's stock price. Like the previous SANERGY GROUP (02459), which saw its stock price surge by 463% to 21.15 Hong Kong dollars between May 2 and August 19, but the day after being publicly named for high ownership concentration (September 3), the stock price dropped by 98.4%; CHANGJIU HLDGS (06959) saw a drop of 65.71% on June 20 after the high ownership concentration was disclosed on June 19. With the stock price drop, many retail investors have exited the market. As of the close on the 20th, the largest net sellers were retail investors from Futu, who sold a net of 12.914 million shares. It can be seen that most retail investors entered the market during the continuous rise in the company's stock price from October 25, with Futu's shareholding percentage increasing from 5.2% to 5.71% between the 25th and 28th of October. The largest net buyers were China International, with a net purchase of 1.908 million shares, followed by HSBC Securities Asia with 974,000 shares and Yao's with 558,000 shares. It is worth noting that as of now, the shareholding percentages of China International and Yao are not high, at around 0.01% and 0.12% respectively. Previously, Hui Li, who had sold in large numbers, has seen his shareholding percentage decrease from 0.27% to 0.16% from October 8 to the present. However, looking at the distribution of chips, many investors are still stuck. Based on the current stock price and chip distribution, only 18.16% of chips are in profit, with a resistance level at 4 Hong Kong dollars and an average cost of 3.54 Hong Kong dollars. With a large number of chips forming resistance above, if there is not enough buying interest later on, it will be difficult for the company's stock price to turn into an upward trend. At the same time, the recent news of major shareholders reducing their holdings may also exert pressure on the stock price. On September 13, controlling shareholder Chaoxin Limited reduced its holdings by 165 million shares, and on the 27th, the controlling shareholder Lijian also reduced its holdings by 165 million shares, reducing its holdings from 370 million shares (about 37.0% of the company's total issued capital) to 205 million shares (about 20.5%). From a fundamental perspective, according to the latest interim report for 2024, SPROCOMMINTEL achieved total revenue of 1.257 billion yuan in the first half of 2024, a growth of approximately 55.8% compared to the same period in 2023, with a net profit of 9.856 million. The company stated that the revenue growth mainly came from the sales of smartphones and IoT-related products. Although the performance is still good, the company's business belongs to the low-end manufacturing industry, and the revenue scale is relatively small.The mid-term profit is less than 10 million yuan and the market valuation is not very high.Hola, cmo ests?