The much-anticipated Changxin Technology made a stellar debut on the STAR Market. On its first day, the stock price surged approximately fivefold, propelling the company's market capitalization to 3.3 trillion yuan and making it the most valuable company on the A-share market. This was the largest IPO on the STAR Market since its inception, raising a total of 57.919 billion yuan (before the greenshoe option) or 66.607 billion yuan (if the greenshoe option is fully exercised). With this colossal listing, the market is focused on four key questions: Has the valuation reached its peak? Is the valuation misaligned? What is the impact on the indices? And what does it mean for other components of the STAR 50 index? Let's break it down.
Has the IPO Valuation Reached Its Peak?
First, let's look at the valuations provided by brokerages. The consensus among institutions for a "reasonable market capitalization range" is 2-3 trillion yuan (corresponding to a stock price of 30-45 yuan). The closing price of 49 yuan and a market cap of 3.28 trillion yuan have already surpassed the upper end of the institutional consensus range, entering a zone of sentiment-driven premium. An interesting aspect is the difference in valuation methods between the primary and secondary markets. In the primary market, Changxin Technology used a market-based inquiry and pricing mechanism. The median bid in the offline placement was 8.85 yuan per share, with a weighted average of 8.8486 yuan per share. The final pricing of 8.66 yuan per share was slightly below the inquiry median. The six joint lead underwriters based their pricing on the price-to-book (PB) ratio. The PB ratios were: 9.18x before issuance, 5.06x after issuance (but before the greenshoe option is exercised, on a diluted basis), and 4.78x after the full exercise of the greenshoe option. This PB ratio is quite similar to the PB ratio at the time of SK hynix's ADR issuance in the US. The lead underwriters simply offered a modest concession to the primary market. In contrast, when analyst firms in the brokerage sector address the secondary market, they typically use the price-to-earnings (PE) ratio for valuation, which is based on future earnings. As a leader in the memory chip industry, Changxin operates in a sector that has long been asset-heavy and highly cyclical, similar to the oil and mining industries. In cyclical industries, companies make huge profits during shortages but can suffer heavy losses during periods of oversupply. The general investment strategy for cyclical stocks is to buy at the cycle bottom when PE is high and PB is low, and sell at the cycle peak when PB is high and PE is low. Therefore, it is quite reasonable to value Changxin at a PB ratio of 10x, which is what the global secondary market is currently giving to SK hynix. This would prevent the stock from peaking immediately after its listing. However, the reality is that the market has assigned an exaggerated PB of 24x, indicating that secondary market investors are hoping for someone else to take over the baton.
Is the Valuation Misaligned?
Changxin Technology is China's leader in memory chips, while Semiconductor Manufacturing International Corporation (SMIC) is China's leader in chip manufacturing. From an industry chain perspective, Changxin is comparable to SK hynix, and SMIC is comparable to Taiwan Semiconductor Manufacturing Company (TSMC). Both Chinese companies face technological bottlenecks related to high-end lithography machines and rely on mature process nodes using DUV multi-patterning exposure techniques, which are barely sufficient. The technological gap with their global peers remains significant. If future technological breakthroughs can be achieved, both companies have room for improvement. Changxin Technology's total market capitalization is 3.3 trillion yuan, while SMIC's total market cap is only 1.2 trillion yuan. This makes Changxin nearly three times the size of SMIC. In contrast, in the international market, TSMC's latest market cap is approximately 2.2 trillion US dollars, compared to SK hynix's approximately 1.10 trillion US dollars. TSMC is about twice the size of SK hynix, with the more cyclical SK hynix naturally having a lower market cap than the more defensively moated TSMC. The significant market cap inversion between Changxin Technology and SMIC seems to defy common sense.
Impact on the Indices
Broad-based indices like the CSI 300 and CSI A500 require stocks to be listed for at least one year before they can be included, so the immediate impact on these indices is minimal. Changxin will not be eligible for inclusion in these core broad-based indices until at least December 2026. In the short term, the disturbance is mainly confined to the STAR Market. According to the Shanghai Stock Exchange's "Compilation Rules for the SSE STAR 50 Index," the weight of a single constituent is capped at 10%, and the combined weight of the top five constituents cannot exceed 40%. Stocks ranked among the top five in the STAR Market by average daily total market capitalization and listed for at least three months can be included through quarterly index adjustments. The adjustment windows are the trading day following the second Friday of March, June, September, and December each year. With its market cap now firmly in first place on the STAR Market, Changxin could be included in the STAR 50 index as early as December 2026. The current top five weighted stocks in the STAR 50 index are Cambricon (8.63%), SMIC (8.16%), Haiguang Information (8.07%), AMEC (8.00%), and Montage Technology (7.55%). Once Changxin is included, it will immediately become the largest weight component, with an initial estimated weight of 8% to 10%. The passive incremental funds are substantial. Given the large scale of ETFs tracking the STAR 50 index and related semiconductor-themed index funds, Changxin's inclusion will bring hundreds of billions of yuan in passive buying pressure. This is a core source of the medium-to-long-term "liquidity injection" effect that speculative capital is betting on.
Impact on Existing STAR 50 Constituents
The listing of Changxin will have a distinctly structural impact on the existing constituents of the STAR 50 index. The stocks that will face pressure are the existing heavyweight semiconductor stocks. These stocks, including Cambricon, SMIC, Haiguang Information, AMEC, and Montage Technology, will face significant weight dilution pressure. With Changxin taking the top spot with an initial weight of 8-10%, and the total weight of the top five being capped at 40%, the current heavyweight stocks will be forced to "give way." Cambricon, currently at 8.63%, is close to the 10% upper limit. After Changxin's inclusion, index fund rebalancing will actively reduce holdings in Cambricon. Although the index weight adjustment is still three months away, the secondary market will price this in ahead of time. These stocks are also constituents of the SSE 50 and CSI 300, so they will be indirectly affected as well. The beneficiaries will be the upstream and downstream segments of the memory industry, as well as semiconductor equipment and materials companies. As China's only large-scale DRAM IDM company, Changxin's listing will fundamentally change the valuation imbalance in the A-share semiconductor sector, which has been "strong on design but weak on manufacturing." The massive IPO proceeds also provide ample funding for the industry chain. Semiconductor equipment companies, for example, will benefit from Changxin's future capital expenditure increases, leading to higher certainty for equipment and materials orders.
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