AMTD Digital Market Cap Soars From $1 Billion To $400 Billion: What Is It And Who Is Behind It?

What the heck is AMTD Digital Inc. and who is behind it?

That’s the question many investors are asking after an unknown Hong Kong company managed to join the ranks of global megacaps worth around half a trillion dollars on Tuesday.

It started when the American Depository Share (ADS) with ticker code HKD gapped, jumping 25% over the previous closing price just as trading began before hitting an intraday high of $2,555.

At its peak, its value more than tripled and it reached a market capitalization of more than $450 billion, more than Facebook parent Meta or Chinese online retail giant Alibaba.

And it did so on a daily volume of just 350,500 shares, according to data from yahoo Financeits lowest level since ADSs began trading and well below the 1.2 million that had been traded on average.

Even if it’s now lost a quarter of its value on Wednesday, it’s still worth about $240 billion, making it more valuable than Toyota, Nike, mcdonald’s or walt Disney.

Needless to say, this was an impressive performance for a company that sold 16 million shares at $7.80 each in mid-July, giving it a market cap of around $1 billion.

What’s behind the surge?

There seems to be no justification for that kind of market cap.

The total income-producing assets on its balance sheet just passed the $400 million mark as of March according to SEC filingsa minnow in the world of high finance. Fortune He tried to contact the company, but emails and calls were not immediately returned.

a look at your website it reveals little of its business model. Its short, minute-long corporate introduction video touts the company as a “comprehensive digital solutions platform in Asia and a fusion reactor for the best entrepreneurs and ideas in the digital age” using an aesthetic distinctly similar to Star’s. Wars.

A deeper look at his prospectus filed with the SEC reveals what that means.

AMTD Digital basically sells a kind of club membership to its “SpiderNet Ecosystem Solutions”, which claim to provide benefits by connecting businesses with each other. This comprised the vast majority of its $25 million in annual revenue generated in the fiscal year ending April 2021.

Quite unusually, his pre-tax earnings over the last three years have been consistently higher than his top line thanks to fair value accounting earnings on his economic interests in companies including Appier, DayDayCook WeDoctor and five Asian fintechs.

The company’s parent is AMTD Group, a Hong Kong conglomerate that lists investment banking, hotel services, higher education, media and entertainment as its core competencies. It also has another subsidiary, AMTD IDEA, which is also listed on the New York Stock Exchange, although it is worth only $14 billion.

‘Significant volatility’

It is unclear why exactly AMTD Digital is listed in the US, as it immediately warned investors in its prospectus for the sale of shares that it could eventually be forced to delist under SEC rules.

This is because the bureaucracy put in place by Beijing currently prevents its Chinese auditor from being scrutinized by the US Public Company Accounting Oversight Board established under the Sarbanes-Oxley Act.

This has been a constant source of frustration for investors in many Chinese stocks. If the US and China fail to reach an agreement, approximately 261 US-listed Chinese companies with a combined market value of $1.3 trillion face delisting.

President and CEO of parent company AMTD Group, calvin choihe left his job as managing director at UBS to take charge.

His capitalist history and his distinction as a Young Global Leader with the World Economic Forum do not prevent him from extolling the strengths of the communist party of mainland chinaor celebrating the “glory and dream of the Great Rejuvenation of the Chinese nation” a century after its founding.

Despite having an executive vice president with a history of fighting corruption and links to Carrie Lam, Beijing’s former proconsul in Hong Kong, Choi himself is nevertheless allegedly being the subject of a two-year industry ban by the city’s securities regulator after investor China Minsheng Investment Group accused Choi of wrongdoing.

“Some projects [undertaken with funds from CMIG] he actually made money, but he didn’t give us the profits,” a senior company executive said. told china caixin in October 2020. “Some had losses, but we don’t know if they actually invested or embezzled the money.”

a seismic anomaly

In the world of fundamental analysis, where companies are valued based on their future cash flows, AMTD Digital’s mind-boggling market capitalization is the kind of seismic anomaly in the financial system that, statistically speaking, should only happen once every year. a hundred years.

Even AMTD Digital doesn’t seem to know why it’s so valuable now. Using a thank-you letter to his new shareholders as an opportunity, he stated that he was also puzzled by the performance of his shares.

“During the period since our initial public offering, the Company has noted significant volatility in the price of our ADSs and has also seen very active trading volume,” he wrote Tuesday. “To the best of our knowledge, there are no material circumstances, events or other matters relating to the business and operating activities of our company as of the date of the initial public offering.”

With that kind of jump, it’s no surprise that the permabears emerged from their sleep. Prominent short-sellers Jim Chanos questioned whether “we’re all going to ignore the 400 billion meme stocks in the room,” while Hindenburg Research’s Nate Anderson called its controlling owner AMTD Group “sketchy.”

Coincidentally, it came on the same day that Securities and Exchange Commission Chairman Gary Gensler hailed the 20th anniversary of the Sarbanes-Oxley Act aimed at restoring confidence in America’s capital markets following fraud scandals. accountant who defrauded investors in Enron and Worldcom.

The lead-up triggered painful memories of Robinhood’s fateful decision to remove the ability to retail investors will place purchase orders on the GameStop retail chainseen as a decision to protect a handful of underwater hedge funds in meme stocks.

“So why wasn’t the buy button for HKD removed? Why wasn’t retail behind it? answered one Twitter user to Gensler on Tuesday. “True fraudulent stock market. You are useless.”

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