INITIAL PUBLIC OFFERINGS

Magnum shares soar on disco firm's debut

Listingof nightclub operator sees shares nearly double despite concerns about its operating model and lack of clarity over expansion plans

PUBLISHED : Friday, 24 January, 2014, 2:19am
UPDATED : Friday, 24 January, 2014, 5:17pm

Hong Kong's first listing of a nightclub and disco operator, Magnum Entertainment, rode on a recent wave of impressive first-day pops as it almost doubled its offer price in its trading debut yesterday.

Shares in Magnum, which manages three clubs in Central, rose as much as 114 per cent at one point yesterday before closing up 89.3 per cent at HK$2.84, as its retail tranche was a record 3,500 times oversubscribed.

The hype for the firm was partly due to the unusually nimble offering size and its unique business model, making it one of the hottest offerings in Hong Kong's initial public offering market. Yesterday Magnum ended the day worth HK$852 million. The firm raised HK$126 million in the listing.

Magnum's stellar performance marked it as the best-performing stock in almost six years since local business tycoon Albert Yeung Sau-shing's New Media Group went public in February 2008, according to data provider Dealogic. Magnum ranked as the seventh best-performing new listing on the Hong Kong stock exchange.

Ben Kwong Man-bun, chief operating officer of Taiwanese brokerage KGI Asia, urged investors to take some profits off the table as yesterday's surge was primarily driven by favourable sentiment over the club operator's high-margin business model.

Magnum, controlled by Yip Mow-lum, chairman of Hong Kong-listed brokerage firm Bright Smart Securities, said it is in discussion with Allan Zeman about expanding into other affluent mainland cities.

Zeman, who transformed Lan Kwai Fong into the city's most popular spot for drinks and trendy restaurants, has businesses in Chengdu, Haikou, and Wuxi.

Yip, who was fined by the Securities and Futures Commission for publishing false and misleading advertisements in 2004, holds 72 per cent of the nightclub chain after the listing.

Some investors questioned Magnum's operating model as the listing expenses were almost identical to its entire net profit for last year, prompting queries about whether it is a shell company for sale in the future, given its light asset model and lack of clarity over feasible expansion plans.

"The nightclub business model can be duplicated easily as the young customers swiftly change from one club to another," said Matthew Kwok, chief strategist at China Yinsheng Securities.

Another market participant suggested companies with a listing status in Hong Kong could easily fetch HK$300 million, with potential buyers favouring firms without complicated financial transactions on their books.

Magnum's total listing expenses were HK$28 million, slightly lower than the full-year net profit of HK$28.03 million.