CARLINK TECH (02531) Capital Expansion "Roll Over": "Highly Concentrated Equity" Shatters Dreams of Entering the Main Board in March

Once rose sharply under the frenzy of funding, CARLINK TECH (02531), which has surged more than 7 times in half a year, was hit by a sniper attack on January 16, plummeting more than 30% during trading. The reason for this came from a warning issued by the Hong Kong Securities and Futures Commission about "highly concentrated shareholding". On January 15, CARLINK TECH was named by the Hong Kong Securities and Futures Commission for having highly concentrated shareholding. The announcement showed that the Hong Kong Securities and Futures Commission recently conducted an inquiry into the shareholding distribution of the company. The inquiry results showed that on January 2, the company had 20 shareholders including 3 executive directors of the company, holding a total of 348 million shares of the company, equivalent to 94.94% of the company's issued shares. Therefore, the company only had 18.5595 million shares, accounting for 5.06% of the issued share capital, held by other shareholders. Under such highly concentrated shareholding, the Hong Kong Securities and Futures Commission issued a risk warning. Regarding CARLINK TECH, the Hong Kong Securities and Futures Commission stated in the announcement that due to the highly concentrated shareholding among a small number of shareholders, even a small amount of share trading could lead to significant price fluctuations in the company's shares. Shareholders and potential investors are advised to exercise caution when buying or selling the company's shares. Replaying the details of the more than 7-fold increase in the past half year, one can better understand the "techniques" behind CARLINK TECH's performance. On July 15, 2024, CARLINK TECH successfully went public on the Hong Kong Stock Exchange at an offering price of 4.7 Hong Kong dollars. Subsequently, its share price continued to rise, using the 30-day moving average as support to establish a clear uptrend. Within the year, CARLINK TECH's share price surged to a high of 36 Hong Kong dollars. In less than half a year, its highest share price had increased by over 703.6% from its low point of 4.48 Hong Kong dollars, outperforming many other new stocks. Why was CARLINK TECH able to achieve such a strong performance? It is believed that from the perspective of fundraising and chip collection, the company's share price increase can be divided into two stages. As is well known, before a stock price surges significantly, the main funds will always collect chips through various means to achieve a degree of light control, followed by moderate control and then high control. However, the collection of chips by the main funds is not a one-off event but a long-term continuous process to achieve high control. Specifically for CARLINK TECH, in the first stage (from July 15 to July 30), the company achieved high fund control through the peak movement of chips. As of July 15-17, the stock used a way of dropping more than 12% on the first day and sideways volume adjustment on the 16th to 17th to allow most retail investors to surrender their blood-stained chips, completing the fund control for the subsequent surge. As expected, from July 18 to 26, CARLINK TECH saw increases of over 125% for 7 trading days in total, with a total trading volume of 14.04 million shares and an average daily trading volume of about 2 million shares, a turnover rate of 3.83%. It is noteworthy that in this round of substantial growth, whether in terms of volume or turnover rate, the fundraising control has not reached the perfect state of high control. Thus, from July 29 to July 31, a cumulative decline of over 28% in three trading days helped further control the fund. During this period, the top chips moved down steadily, and trapped investors would continue to stop loss until no one dared to bottom fish. The average daily trading volume of the stock was about 850,000 shares, with a turnover rate of 0.69%. After the trading volume cooled down, relevant funds entered to collect chips, thereby increasing the control strength of the funds for the next round of growth. In the second stage (from August 1 to August 24), CARLINK TECH achieved a more than three-fold increase in stock price with minimal trading volume. Specifically, the stock surged by 355%, with a total trading volume of less than 27 million shares and an average daily trading volume of less than 270,000. Compared to the average daily trading volume of about 2 million in the first stage, it can be said that they achieved great success with "small" bets for "big" wins. It can be seen that the company's fund control degree was already very high. "Highly concentrated shareholding" warning Shattering the "entry dream" The lifting of lock-up periods for controlling shareholders and cornerstone investors, coupled with a warning from the Hong Kong Securities and Futures Commission about highly concentrated shareholding, led to the bursting of CARLINK TECH's stock price bubble. From its peak of 36 Hong Kong dollars, the stock price plummeted to a low of 19.8 Hong Kong dollars, a decrease of more than 80%. More importantly, this warning about "highly concentrated shareholding" has shattered CARLINK TECH's dream of entering the Stock Connect program in March. According to calculations, based on the "daily market value" inspection method, as of December 31, the average daily market value of the stock was approximately 6.42 billion Hong Kong dollars. However, as of December 31 of the previous year, the market value threshold for Hong Kong stocks to be included in the Hang Seng Composite Index and the Stock Connect program was around 5.976 billion Hong Kong dollars. This means that CARLINK TECH was expected to be included in the Stock Connect program on March 10, 2025. However, after being warned about highly concentrated shareholding by the regulator, its eligibility for entering the program will be temporarily suspended until the issue of highly concentrated shareholding is resolved. This seems to indicate that CARLINK TECH's recent entry into the program has become a pipe dream, and the efforts of related funds seem to have come to naught. It is understood that previously, several new stocks were unable to enter the Stock Connect program due to highly concentrated shareholding, including SANERGY GROUP (02459) and MIGAO GROUP. Furthermore, stocks that were named by the Hong Kong Securities and Futures Commission for "highly concentrated shareholding" subsequently performed poorly. For example, PAK TAK INT'L plummeted by 104% in two months. It is worth mentioning that CARLINK TECH has responded to the warning from the Hong Kong Securities and Futures Commission. The company stated, "The company confirms that as of January 2, 2025, and the date of this announcement, no less than 25% of the company's issued shares are held by the public, and the company is able to comply with the requirements of the public shareholding under the Listing Rules of the Stock Exchange." Public information shows that CARLINK TECH's issuance ratio is 17.35%, and according to the inquiry results of the Hong Kong Securities and Futures Commission on January 2, 2025, the company only had 5.06% of shares held by other shareholders. In addition, according to the data disclosed by the Hong Kong Securities and Futures Commission, as of January 2, a total of 77.76% of shares were still in the lock-up period, with a total of 12 shareholders.Therefore, under rough calculations, as of January 2nd, a total of 20 shareholders held 94.94% of the shares, subtracting the 77.76% held by the 12 shareholders mentioned above, there are still 8 shareholders behind CARLINK TECH holding approximately 17.18% of the shares. As of January 15th, the number of shares held by 59 brokers of CARLINK TECH was 62.8155 million, accounting for approximately 17.13%. Among them, CEB International Securities, Yuexiu Securities, and Funderstone Securities are the top three brokers, with ownership ratios of 5.11%, 3.58%, and 1.85% respectively. In addition, since listing, Yuexiu Securities and GF SEC Hong Kong have reduced their ownership ratios by 3.53% and 2.06% respectively; while Funderstone Securities, Guoyuan International Securities, VICTORY SEC Hong Kong, and COFCO International Securities have increased their ownership ratios by 1.85%, 1.12%, 0.778%, and 0.76% respectively. Unstable Profit Performance Regarding the volatile rise and fall of CARLINK TECH, the fundamental and value investing concepts once again became the background. So, what is the true essence of this company without the "cloak" of financial operations? According to the prospectus, CARLINK TECH is a leading intelligent connected services provider in the Chinese automotive aftermarket industry, focusing on providing in-vehicle hardware products and SaaS marketing and management services to participants in the industry value chain. The in-vehicle hardware includes in-vehicle entertainment systems, in-vehicle safety systems, and intelligent core boards. The SaaS marketing and management services include SaaS subscription services and SaaS value-added services. Based on unaudited financial data and operating conditions for the first three quarters of 2024, in the first three quarters of 2024, the company's revenue reached 494 million yuan, a year-on-year increase of 26%, with a gross profit of 171 million yuan, a year-on-year increase of 74%. The performance is impressive. However, looking at a longer time frame, the company's profit performance is relatively unstable. The gross profits from 2020 to 2023 were approximately 110 million yuan, 94.681 million yuan, 173 million yuan, and 252 million yuan respectively; and the net profits were approximately 48 million yuan, 35 million yuan, 49 million yuan, and 51 million yuan respectively. In 2023, the company's gross profit margin reached 44.9%, an increase of 3.1 percentage points year-on-year, but the net profit margin decreased by 2.3 percentage points to 9.2%. The reason behind the unsatisfactory profit performance is the sharp increase in advertising expenses suppressing the profit margin. In 2022, the company's distribution and sales expenses reached 91.28 million yuan, a significant increase of 187% year-on-year; in 2023, distribution and sales expenses further increased to 159 million yuan, a year-on-year increase of 74.5%. Advertising expenses increased by 13.5 times in two years. It is worth noting that the proportion of advertising expenses in the distribution and sales expense structure of CARLINK TECH has been increasing year by year, from 27.7% in 2021 to 80.2% in 2023, with the advertising expenses increasing from 8.812 million yuan to 128 million yuan during this period. It is comforting to note that in the first half of 2024, the company's debt repayment ability and operational capacity have improved. Especially in the improvement of the current ratio and quick ratio. The current ratio is 2.86, an increase of 0.72 percentage points year-on-year; and the quick ratio is 2.80, an increase of 0.73 percentage points year-on-year. In conclusion, with the combined efforts of funding, CARLINK TECH has achieved a "myth" of soaring stock prices, but the rapidly inflated valuation and stock prices have generated a huge amount of bubbles. However, the "highly concentrated equity" burst the bubble, leading CARLINK TECH to fall in front of the "Hong Kong Stock Connect". It is evident that catalyzing stock price growth under "concentrated equity" has become a revelation for this funding disaster, and its lessons are worth investors' awakening.