Throughout the eventful year of 2025, the fervent Hong Kong IPO market birthed numerous "star IPO candidates," and among this constellation of stars, INNOGEN-B (02591) still managed to stand out with its identity as the "first-ever Mechanism B listing." Under the new "Mechanism B" rules, which lock in a final public offering allocation of 10%-60% with no clawback provision, the game between institutions and retail investors has been fundamentally rewritten, reshaping the entire ecosystem for new share subscriptions in Hong Kong. As the inaugural listing under this new framework, INNOGEN witnessed its grey market price surge over 270%, catapulting its market capitalization beyond HK$32.4 billion, and subsequently secured a spot as a constituent of the Hang Seng Composite Index via the quarterly fast-entry mechanism, ultimately being included in the Hong Kong Stock Connect list on December 8 last year. However, since its inclusion, the stock has experienced significant volatility, including single-day plunges exceeding 14%, a cumulative drop of nearly 30% within the first seven trading days post-inclusion, and the formation of a "Guiding Immortal" candlestick pattern, perhaps signaling that the subsequent performance of this "Mechanism B pioneer" will be anything but straightforward.
Was Hong Kong Stock Connect capital "forced to buy the dip"? As the pioneering "Mechanism B" IPO, the advantage of this mechanism in "protecting and escorting" the stock price at the debut was vividly demonstrated with INNOGEN. Unlike the traditional clawback mechanism, Mechanism B requires the issuer to pre-select a fixed allocation percentage for the public offering portion, with a lower limit of 10% and an upper limit of 60% of the total shares offered; once set, this ratio is final with no provision for clawback. While the core objectives of this new rule are to enhance IPO pricing efficiency, bolster market stability, and grant greater discretion to issuers and institutional investors, it is undeniable that Mechanism B allows companies greater control over their issuance structure. By opting for Mechanism B and minimizing the public offering to the 10% lower limit, issuers can artificially create an extremely constricted floating supply, resulting in an ownership structure dominated by institutional, cornerstone, and anchor investors, thereby achieving the goal of "price protection" at the start of trading.
The impact of this mechanism choice on the issuer's investor base, market performance, and post-listing liquidity quickly manifested in INNOGEN's price action. The stock skyrocketed over 270% in the grey market before its official debut and closed up 206.48% on its first trading day, marking an outstanding initial performance. Subsequently, shielded by the ultra-tight floating supply engineered by Mechanism B, although INNOGEN's share price trended lower, it still managed to meet the market capitalization criteria for mid-to-large caps during the Q3 review period for the Stock Connect's quarterly fast-entry mechanism, ultimately gaining inclusion. Chart analysis shows that from its debut last year until October 27, the Bollinger Band (BOLL) width for INNOGEN was pointing downwards and exhibited a pronounced narrowing trend early on, guiding the price into a sustained oscillating decline. During this period, the stock price largely oscillated mechanically between the middle and lower Bollinger Bands, with the overall trend characterized by a decline on low volume. Throughout this extended period of low-price consolidation lasting over two months, INNOGEN saw only 6 trading days where daily turnover exceeded 1 million shares, indicating exceptionally weak market activity and, from another perspective, highlighting the price-stabilizing effect of "Mechanism B."
During the earlier phase of oscillating decline, there was a period where the Bollinger Bands accelerated their narrowing, specifically from November 3 to November 21 last year. During this window, the stock's volatility decreased significantly, typically a precursor to an impending trend change or breakout. On November 24, INNOGEN printed a long-awaited strong bullish candlestick, closing up over 30% for the day, and subsequently staged a "five consecutive green days" rally. Examining the volume, even on the significant surge on November 24, turnover was merely 1.1575 million shares, with daily volume during the five-day rally sometimes falling below 500,000 shares, displaying clear characteristics of a low-volume advance. This suggests a high degree of control by major holders within the market, consistent with the typical behavior associated with a Mechanism B listing. Immediately after, during two corrective waves on December 1-2 and December 8-9, no significant selling volume emerged, indicating a lack of willingness by major holders to sell. It wasn't until December 10, when another strong bullish candle appeared with a near 20% gain, that INNOGEN's turnover expanded noticeably to 19.15%. However, this single-day surge failed to ignite sentiment among outside holders, as volume declined again the next day, signaling a severe lack of attention from potential new buyers and insufficient market support, leading to the phenomenon of price decline on scant volume.
It is worth noting that this activity occurred after December 8, by which time INNOGEN had already been included in the Stock Connect. In reality, this low-volume rally post-inclusion did not trigger large-scale buying from Connect funds. Data on Connect holding percentages shows that in the five trading days following inclusion, only a portion of Connect capital entered the market, likely employing a left-side trading strategy; by December 16, Connect holdings stood at 0.51%. However, as the stock price continued to decline thereafter, Connect funds did not follow up with additional purchases; on the contrary, they began selling. By January 27, INNOGEN's Connect holding ratio had dwindled to just 0.27%.
The "Guiding Immortal" Signal Before the Annual Report. However, on January 29, the attitude of Connect funds appeared to perform a complete 180-degree turn. Brokerage transaction data reveals that on January 29, the top five selling seats for INNOGEN were Futu, CITIC Securities, Longbridge, Umillion, and Futu Securities, selling 1.7432 million, 781,800, 597,600, 221,800, and 89,400 shares respectively. On the buying side, the top five were Hong Kong Stock Connect (Shanghai), Hong Kong Stock Connect (Shenzhen), Xincheng, BNP Paribas, and Huatai Financial Holdings, buying 2.2206 million, 1.001 million, 97,600, 87,800, and 60,200 shares respectively. Clearly, Connect funds were the dominant buying force that day, with a total net purchase of 3.2216 million shares accounting for a staggering 93% of the net buying volume among the top five brokers, pushing the Connect holding ratio up to 1.02% in a single day.
This rapid shift in sentiment among Connect funds may be linked to the price action on January 27. Prior chart activity showed that after the rollercoaster ride around its Connect inclusion, INNOGEN's price had retreated from its pre-inclusion high of HK$44.98 to around HK$30. The Bollinger Bands once again began narrowing sharply, corresponding to a significant reduction in price volatility and a trend towards stabilization, entering a phase of low-level consolidation that again hinted at a potential trend reversal. This time, however, major holders added a probing move: the "Doji Star" candlestick formed on January 27. On that day, within the first 15 minutes of morning trading, INNOGEN's price suddenly surged rapidly, with intraday gains approaching 60%, before quickly retreating to close up just 3.34%. The formation of a candlestick with a long upper shadow during a low-level consolidation phase typically signals that major holders are conducting an upward probing attack, aimed primarily at testing the stability of existing holdings and the level of resistance above, while covertly signaling potential further upward movement.
Analyzing the volume, the price spike on January 27 was accompanied by a significant expansion in turnover, with daily volume reaching 11.1614 million shares. However, volume contracted noticeably during the correction the following day, suggesting limited selling pressure from within and no desire by major holders to exit. Subsequently, on January 29, INNOGEN saw volume expand again and formed another long upper shadow candlestick, which can be interpreted, to some extent, as a second verification of upward intent following the initial probe. Furthermore, on January 30, volume contracted sharply again to just 1.5356 million shares, further clarifying the intention of major holders to remain positioned. Although INNOGEN closed down 5.28% on January 30, from another perspective, this repeated process of testing and declining might indicate that major holders are engaging in suppression to shake out weak hands, potentially accumulating energy and preparing the ground for a formal upward move that may be on the horizon.
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