Shares of Milan Station surged more than 70 per cent in trading yesterday after the retailer of second-hand luxury handbags said it planned to form a joint venture in Chengdu, Sichuan.
Analysts said the capital market had overreacted to the news, noting that it was too early to tell if the venture would succeed.
The share price of Milan Station shot up 73 per cent in the morning before closing at 75 HK cents, up 55 per cent from the day before, making the company the top performer in the Hong Kong stock market yesterday.
"I am a bit surprised to see the dramatic rise of the stock price," said Philip Mok, an analyst at Phillip Securities in Hong Kong.
"Generally speaking, setting up a joint venture on the mainland is good news for the company. But it's too early to see how much this can benefit the retailer, whose profit has been falling since last year."
Milan Station said in a filing that it planned to partner with Star Continent to invest a total of 30 million yuan (HK$36.6 million) to establish Milan Station Trading (Chengdu) to sell second-hand luxury handbags.
The venture will be 70 per cent owned by Milan Station, and Star Continent will hold the rest.
"I think many inventors just wanted to speculate on the stock and look for short-term gains," said Eugene Mak, an analyst at Core Pacific-Yamaichi Securities. "The company is already too expensive at this price, considering its earning expectations."
The market capitalisation of Milan Station recorded a single-day rise of as much as HK$178 million and reached HK$505.5 million yesterday.
Milan Station, which operated 16 shops in Hong Kong, Macau, Beijing and Shanghai at the end of last year, expects a "substantial drop" in net profit for the six months to June.
Its stock, which was listed in May last year, has fallen more than 60 per cent this year, compared with a 9 per cent decline in the benchmark Hang Seng Index.
Mok said it would be hard to see the joint venture in Chengdu contributing to the company's revenue this year. He said the company usually needed two to three months to collect second-hand bags for a new shop before its formal opening.
"Luxury sales in Hong Kong have slowed in the first quarters of this year," he said. "This will have a much bigger impact on the company's business prospects than the joint venture."