Judging solely from the 59.55 times oversubscription in its public offering, the narrative of TONGSHIFU (00664) being "the Pop Mart for middle-aged people" was undoubtedly successful. This led many retail investors to hope that TONGSHIFU could replicate the strong performance of Pop Mart (00992) in the capital markets. However, reality proved harsh. TONGSHIFU closed down 30% during the grey market trading session. On its official debut on the Hong Kong stock exchange on March 31, the stock opened sharply lower, down 40%. After a brief rally lasting less than ten minutes post-opening, it faced intense selling pressure and declined throughout the day, ultimately closing down 49.17%. The following day, April 1, the stock price fell further to HKD 26.28 per share, representing a decline of over 56% from its IPO price of HKD 60. Such a listing performance was startling for the market, especially considering the hot streak in the IPO market since 2026. Data shows that 40 new stocks listed in Hong Kong during the first quarter of 2026, but only five, including TONGSHIFU, closed below their issue price on the first day—meaning only one in eight new stocks broke issue price, and TONGSHIFU was among them. Furthermore, only two new stocks in the quarter saw their prices halve from the issue price, and TONGSHIFU was again one of them. Following such a severe plunge, a critical question emerged for the market: has TONGSHIFU's current stock price fallen to a level that presents allocation value, and what valuation should the market assign to it?
The primary reason for TONGSHIFU's post-listing crash boils down to its excessive valuation. According to its prospectus, revenues for 2022, 2023, and 2024 were RMB 503 million, RMB 506 million, and RMB 571 million, respectively. Adjusted net profits for the same periods were RMB 56.938 million, RMB 44.131 million, and RMB 78.982 million, showing significant volatility and lacking strong overall growth momentum. In 2025, revenue reached RMB 617 million, a year-on-year increase of 8.06%, while net profit was RMB 47.838 million. After adding back listing expenses of RMB 20.22 million incurred during the reporting period, the actual net profit for 2025 was RMB 68.058 million, representing a year-on-year decline of 13.83%. This performance further highlighted the mismatch between the company's fluctuating profitability and its perceived growth potential.
Despite this financial performance, the company was assigned a staggering valuation at listing. TONGSHIFU issued 7.4068 million H shares at HKD 60 per share, representing 11.5% of the total share capital post-listing, implying a market capitalization of approximately HKD 3.864 billion. Based on the 2025 actual net profit of RMB 68.058 million (approximately HKD 77.52 million), the IPO price corresponded to a static price-to-earnings (P/E) ratio of nearly 50 times. In the Hong Kong market, which often has relatively lower liquidity, a high valuation inherently implies that the market holds extremely high expectations for the company's fundamentals. Typically, Hong Kong consumer stocks trade at P/E ratios between 10 and 20 times. TONGSHIFU's issuance valuation far exceeded this range, yet its earnings performance lacked the robust high-growth support to justify it. This significant disconnect between fundamentals and valuation made the high valuation difficult for the market to accept, which is the fundamental reason for the stock breaking issue price and remaining under pressure.
So why did TONGSHIFU receive such an "unreasonable" valuation? The answer likely lies in the seemingly simple narrative of being "the Pop Mart for middle-aged people." This successfully crafted a new, exciting story for the capital markets—equating a niche copper art brand with a proven, high-growth, high-margin pop toy business model. This narrative temporarily supported a valuation fantasy far exceeding its fundamentals during the IPO stage. However, the excessively high valuation could not withstand market scrutiny, and the over 56% drop in two days was the market's definitive response to TONGSHIFU's overconfident pricing.
A significant factor contributing to the plunge may have been a puzzling "reverse clawback" mechanism. During the book-building phase, institutional investors' lukewarm attitude was already apparent. While the "Pop Mart for middle-aged" narrative successfully ignited retail investor enthusiasm, leading to a 59.55 times oversubscription in the public offering, the international placement was only about 1.47 times oversubscribed, indicating low institutional interest compared to other IPOs that quarter. Furthermore, TONGSHIFU only secured one cornerstone investor, JIC International, which subscribed for just HKD 30 million, accounting for only about 6.33% of the issuance size, showing weak institutional support. Consequently, TONGSHIFU priced its IPO at the lower end of the range, typically a direct signal of weak demand and cautious market sentiment.
The controversial move was the forced "reverse clawback." Traditional clawback mechanisms increase the allocation to the public offering when both retail and institutional demand is exceptionally strong, rewarding retail enthusiasm. New HKEX rules implemented in August 2025 introduced Mechanism A and Mechanism B. TONGSHIFU chose Mechanism B, which allocates 10% to the public offering and 90% to the international placement with no automatic clawback, but included a discretionary clause allowing reallocation under specific conditions. Despite the international placement being only 1.47 times covered, indicating scant institutional interest, the company used its discretion to reallocate 370,300 shares from the international portion to the public offering, increasing the public offering proportion from 10% to 15%. This meant retail investors were allocated more shares. This move was widely interpreted by the market as shifting the post-listing selling pressure and price risk onto enthusiastic retail investors, contrary to the original intent of clawback mechanisms.
The company could have opted for a lower issue price or a smaller fundraising size, reflecting market conditions. The inclusion of the discretionary clause itself suggested a lack of confidence. However, choosing a forced "reverse clawback" amidst clear institutional disinterest resulted in significant losses for many retail allottees. This puzzling pricing and allocation strategy is considered a major contributor to the post-listing crash. A more prudent and attractive pricing strategy, coupled with the new narrative, could have better supported a positive post-listing performance, potentially creating a virtuous cycle of brand enhancement, investor conversion to customers, and earnings growth, fostering long-term healthy development. Instead, the high pricing and the perplexing "reverse clawback" led directly to the stock halving immediately upon listing, damaging market confidence and putting heavy pressure on short-term brand building, with widespread reports questioning the validity of the "Pop Mart for middle-aged" narrative. This was a significant blow for a company just entering the capital markets.
As of the close on April 2, TONGSHIFU's total market capitalization had fallen to HKD 2.1 billion. Based on the 2025 actual net profit (RMB 68.058 million), the static P/E ratio was approximately 27 times. While this represents a significant drop from the nearly 50 times P/E at issuance, it remains notably overvalued given the company's earnings profile. In the current Hong Kong market environment, which emphasizes cash flow and certainty, this valuation level offers insufficient safety margin and吸引力 for a company facing growth challenges, profit pressure, and a relatively单一 business structure. This suggests that even with the stabilising effect of the "green shoe" mechanism helping the stock stabilize after the暴跌, the market is likely to remain观望 at the HKD 26.28 price level.
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