The share price of UNISOUND (09678.HK) plummeted 41% yesterday. At the closing price of HK$71.45, the company's market capitalisation stands at approximately HK$5.34 billion. Some observers had anticipated the company could sustain a valuation of at least ten billion, yet the stock price has now been effectively halved from those expectations.
UNISOUND listed on the Hong Kong Stock Exchange on June 30, 2025, with an issue price of HK$205 per share. The offering involved 1,560,980 shares, raising a total of HK$320 million. After deducting listing expenses of HK$114 million, the net proceeds amounted to HK$206 million.
The primary driver behind the sharp decline is the company's entry into a post-lock-up period. While UNISOUND has its own large language model, its market valuation lags significantly behind peers like Zhipu and Minmax.
Recent Placement Leaves Investors Deep Underwater
It is noteworthy that UNISOUND conducted three share placements prior to this lock-up expiration. On January 22, 2026, the company completed a placement of 780,000 H-shares, representing about 5.48% of the shares issuable under a general mandate, at HK$252 per share, raising net proceeds of HK$192 million.
A second placement of 1,008,000 H-shares was completed on February 9, 2026, representing about 7.08% of the shares issuable under the general mandate, raising net proceeds of HK$307 million.
On May 28, 2026, UNISOUND conducted a third placement at HK$228 per H-share, raising net proceeds of HK$380 million.
These placement shares represented approximately 3.92% of the issued H-shares and 2.33% of the total issued shares as of the announcement date. Based on yesterday's closing price, investors who participated in the third placement less than a month ago are facing paper losses of nearly 70%. In contrast, the stock had surged to as high as HK$879 in September 2025, pushing its market cap above HK$60 billion.
Financial Performance Overview
Financial reports show UNISOUND generated revenue of RMB 1.211 billion in 2025, a 29% increase from RMB 939 million the previous year.
Revenue from Smart Living Solutions accounted for RMB 970 million, or 79.9% of the total. Within this segment, solution revenue was RMB 846 million (69.8%), and product revenue was RMB 122 million (10.1%). Revenue from Smart Healthcare was RMB 244 million, representing 20.1% of the total.
Gross profit for 2025 was RMB 437 million, a 19.9% increase from RMB 364 million a year earlier.
Selling and marketing expenses were RMB 65.25 million, administrative expenses were RMB 100 million, and R&D expenses amounted to RMB 380 million.
The net loss for 2025 was RMB 329 million, a 27.5% narrowing from the RMB 454 million loss in 2024. The adjusted net loss was RMB 127 million, a 24.9% improvement from the adjusted net loss of RMB 168 million the prior year.
A Vehicle for Capital Arbitrage
A distinctive feature of UNISOUND's listing was the exceptionally small proportion of shares offered to the public, representing only 2.2% of the total share capital post-listing.
The cornerstone investors for the IPO were SensePower (a subsidiary of SenseTime Group), Zhenyi Asset Management Co., Ltd., and Runjian International. They subscribed for HK$43.7 million, HK$30 million, and HK$20 million worth of shares, respectively.
Excluding the cornerstone holdings, the actual free float available to the public was merely 1.55%.
The prospectus shows that post-IPO, CEO Dr. Huang Wei holds a 23.55% stake through Yunsi Shangyi and a 3.72% stake through Yunchuang Interactive. Dr. Liang Jia'en holds 3.7%, and Kangheng holds 2.22%.
Other major shareholders include Mingfu under Qiming Venture Partners (8.8%), TBP HK under ZhenFund (8.74%), Heyiguyu (8.42%), China Internet Investment Fund (6.23%), JD.com's subsidiary (3.19%), CEC Healthcare (2.26%), and Qirui Tiancheng under 360 (1.92%).
Qualcomm holds 1.75%, CICC Jiatai holds 1.63%, Ningbo Lianli holds 1.41%, Jiaxing Jiahuang holds 0.96%, Yingfeng Technology holds 0.96%, Haikun Jiayu holds 0.71%, Sichuan Innovation holds 0.64%, and Huachuang Jiuhao holds 0.63%.
The extremely small free float means that relatively little capital is required to influence the stock price and inflate the market capitalisation.
A troubling trend is emerging in the Hong Kong market: capital targets AI-related stocks with compelling narratives but small floats. Before these stocks are included in major indices, their prices are artificially inflated using the small float. Once included, the shares are sold to passively managed ETFs or mainland retail investors via southbound trading, completing the arbitrage.
In this scheme, early capital achieves profitable exits, while retail investors attracted by the rising prices often become the losers. As lock-up periods for these companies expire, the inflated valuations are quickly exposed.
Valuation Bubbles in Chinese LLM Companies
UNISOUND's situation serves as a precursor for Zhipu and Minmax, whose valuations are also likely to experience significant volatility.
Companies like Zhipu, Minmax, and Moonshot AI (Kimi) often benchmark themselves against U.S. giants like OpenAI and Anthropic, which are valued in the trillions of dollars. This has led to fantasies that the Chinese counterparts could be worth at least one-seventh of that, implying trillion-dollar valuations.
This reasoning contains major flaws. First, there is a vast difference between valuation methodologies in the U.S. and Hong Kong markets. U.S. companies operate in a mature ecosystem, and high valuations for OpenAI and Anthropic are supported by strategic backing from giants like Microsoft, Amazon, Nvidia, and Oracle. Chinese companies, even if listed in the U.S., do not receive similarly high valuations.
Furthermore, the foundations of Zhipu, Minmax, and Moonshot AI are not as solid as their U.S. counterparts. Domestically, they face intense competition from rivals like DeepSeek, Doubao, and Qwen. The current capital market enthusiasm is overheated, creating significant valuation bubbles for these firms. As they mature, similar to the trajectories of Kuaishou and Xiaomi, their valuations are likely to contract sharply.
Lessons from Recent History
A familiar story is repeating itself, with Zhipu being the latest example. Its market cap has repeatedly surpassed the trillion-Hong Kong dollar mark recently.
Zhipu listed on January 8, 2026, issuing 37.4195 million shares at HK$116.2 each, raising HK$4.3 billion. After deducting listing expenses of HK$175 million, net proceeds were HK$4.173 billion, making it the first pure-play large language model company to go public globally.
Its IPO attracted 11 cornerstone investors, including international long-only funds, prominent industrial capital, and investment institutions such as JSC International Investment Fund SPC, JinYi Capital Multi-Strategy Fund SPC, Perseverance Asset Management, Shanghai Gaoyi, WT Asset Management, Taikang Life Insurance, GF Fund Management, and 3W Fund Management. These investors subscribed for a total of HK$2.98 billion, accounting for nearly 70% of the offering.
Crucially, the total shares offered in the IPO represented only 5.76% of Zhipu's total share capital. Excluding the cornerstone holdings, the public free float was a mere 1.81%. This tiny float allows its share price to be moved with relatively small amounts of capital.
Once Zhipu's lock-up period expires on July 8, 2026, the stock's liquidity will increase dramatically. A potential influx of over HK$50 billion worth of shares into the market will be difficult to absorb. As more shares become freely tradable after the one-year anniversary, Zhipu will face even greater capital market pressure.
Zhipu's soaring share price has provided opportunities for Moonshot AI (Kimi) to raise funds. Kimi has been actively fundraising over the past six months, securing over $3.9 billion, bringing its total funding to over RMB 37.6 billion, making it the most funded LLM startup in China. Recently, it has been seeking further funding at a pre-money valuation of $30 billion, indicating rising potential risks.
Many Hong Kong investors will recall Kuaishou's debut, where its stock price more than doubled on its first trading day. On February 16, 2021, Kuaishou's shares hit HK$417.8, giving it a market cap of HK$1.74 trillion. Today, its shares trade around HK$45.52, with a market cap of about HK$197 billion.
A more recent example is Xiaomi. When its electric vehicle deliveries began, its stock price surged, reaching over HK$60 by September 2025 and a market cap of approximately HK$1.6 trillion.
Within just six months, as the hype subsided, Xiaomi's stock price has retreated to HK$21.64 as of yesterday's close, with its market cap shrinking to HK$558 billion—a loss of over a trillion Hong Kong dollars in market value. Stories of retail investors who bought at the peak are now common on various forums and social media platforms.
A potential collapse in Zhipu's share price would have an even more severe impact on the market. The repeated bursting of such capital bubbles significantly damages the reputation of the Hong Kong stock market and is ultimately detrimental to its long-term development.
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